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Trade
Hedging
Now you can often hear on television about the hedging. As a rule, this word of mention in the news related to the financial sector. Let us examine in detail what lies behind this word. Hedging - insurance against the risk of price changes by occupying a parallel market to the opposite position. Hedging strategy - a set of concrete tools of hedging and ways of their application to reduce price risk.
All strategies that use hedging risk based on the parallel movement of the spot price and futures prices, the result of which is the ability to offset futures market losses in the market of real goods. After reading these definitions it is safe to say that this is not a simple, but effective trading method that allows not only to reduce the risks in transactions, but also to earn practically without conducting other types of analysis.As the hedged asset can be a commodity or financial asset, available-or planned to acquire or manufacture.
How to use currency hedging?
If the trader has opened a position for a certain instrument, but the market price is against the deal, it can be revealed by correlating the tool in the opposite direction. For this you need to take into account the degree of correlation (calculated ratio), the volatility of both instruments.
Remembering that the value of one point tool, as a rule, not equal to the point value of another instrument, adjust the volume of the second position, with further movement of the prices were not only fixed the damage, but total for both transactions turned a profit. In some cases, a possible option to hedge your position on the other exchange, when the counter open positions in different markets.
Hedging transactions in the Forex market is an element of protection, allowing you to adapt to market changes and make profits. Important in currency hedging is the achievement needed for a trader the balance through diversification of funds.
All types of hedges are listed below:
1. Classical (pure) hedging. Hedging by taking opposite positions in the market. The first type of hedge that is used by traders of agricultural products in Chicago (USA).
2. Full and partial hedging. Full hedging implies risk insurance for the full amount of the transaction. This type of hedging completely excludes the possible losses associated with price risk. Partial hedging insures only part of the real deal.
3. Anticipatory hedging. Anticipatory hedging involves the purchase or sale long before the conclusion of the transaction on the market of real goods. In the period between the conclusion of transactions on the futures market and the conclusion of transactions on the market of real commodity futures contract serves as a substitute for a real agreement for the supply of goods. Also anticipatory hedging can be applied through the purchase or sale of forward delivery of the product and its subsequent execution via the stock exchange. This type of hedge is most often found in stock market.
4. Selective hedging. Selective hedging is characterized by the fact that transactions in the futures market and the market of real goods vary in the amount and time of detention.
5. Cross-hedging. Cross hedging is characterized by the fact that the futures market is operation contract on the underlying asset market of real goods, and on the other financial instrument. For example, in the real market performed the operation with the action, and on the futures market with the futures on stock index.
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| Category: Forex | Added by: (06.11.2017)
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| Views: 300
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