Basics of Hedging | How to do Hedging?
Hedging is a sophisticated risk management tactic that entails purchasing or disposing of a security to potentially help lower the risk of a position's potential loss. Image source: Trade Brains Individual investors do not frequently utilise hedging as a trading strategy, and when they do, it is typically done after the initial investment has been made. In other words, you wouldn't hedge a position before you buy or sell a stock short. To minimise potential losses for an existing deal if it moves against your expectations and in the opposite direction, that is the main reason to hedge. Supposing you believe your trade will eventually move in the opposite way from where you want. You could wish to hedge rather than close it out for a number of reasons, including: Overconcentration: You may want to mitigate some of the risks associated with a certain investment (such as business stock) if you have a high exposure to it. Tax repercussions: You might not want to sell ...