Friday, 19 October 2012

What is hedging?



Hedge
risk management strategy used in limiting or offsetting probability of loss from fluctuations in the prices of commoditiescurrencies, or securities. In effect, hedging is a transfer of risk without buying insurance policies.


To reduce the risk of an investment by making an offsetting investment. 

There are a large number of hedging strategies that one can use. 

To give an example, one may take a long position on a security and then sell short the same or a similar security. 

This means that one will profit (or at least avoid a loss) no matter which direction the security's price takes.

 Hedging may reduce risk, but it is important to note that it also reduces profit potential.


below in a  good example of a usdcad hedge technique

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