Be independent, be your own financial planner
 
Search our Website:
Go to Bottom
 
  1. Monetizing Social Media : Find out how social media can also be a great money making tool.
 
  1. Pure Money Making tools : Here we are composing tools to help you manage, optimize and guide your internet marketing strategies!
  2. SEO Forum : Use our open forum. You can use this as an opportunity to share your links and make profits!
A stock hedge attempts to offset the risk of decline in an asset by shorting similar stock that is not expected to perform as well as the stock purchased. Equity in a portfolio can be hedged by taking an opposite position in futures. Savvy investors seeking to maximize return while minimizing risk commonly use hedges. Maximizing relative return is measured by a statistic called alpha. Measuring relative risk in stocks is measured by a statistic called beta.

Hedging techniques generally involve the use of complicated financial instruments known as derivatives, the two most common of which are options and futures. We're not going to get into the nitty-gritty of describing how these instruments work, but for now just keep in mind that with these instruments you can develop trading strategies where a loss in one investment is offset by a gain in a derivative.

Let's see how to hedge with an example. Say you own shares of Wipro. Although you believe in this company for the long run, you are a little worried about some short-term losses in the industry. To protect yourself from a fall in Wipro, you can buy a put option on the company, which gives you the right to sell Wipro at a specific price (strike price). This strategy is known as a married put. If your stock price tumbles below the strike price, these losses will be offset by gains in the put option. Keep in mind that because there are so many different types of options and futures contracts an investor can hedge against nearly anything, whether a stock, commodity price, interest rate and currency - investors can even hedge against the weather.



How to hedge?

Polls
Wrong judgments can leave the investor with two securities moving against the trading positions the investor entered into. However, traders understand that most people only live in their homes an average of seven and a half years. Thus, the appropriate hedge is one of shorter duration.

The majority of investors will never trade a derivative contract in their life. Most of them tend to trade with the market trend. In fact most buy-and-hold investors ignore short-term fluctuation altogether. For these investors there is little point in engaging in hedging because they let their investments grow with the overall market.

Even if you never hedge for your own portfolio you should understand how it works because many big companies and investment funds will hedge in some form. an international mutual fund might hedge against fluctuations in foreign exchange rates, for example, while sugar companies, might hedge against the price of sugar. An understanding of hedging will help you to comprehend and analyze these investments.

A stock trader believes that the stock price of Company A will rise over the next month, due to the company's new and efficient method of producing widgets. He wants to buy Company A shares to profit from their expected price increase, as he believes that shares are currently underpriced. But Company A is part of a highly volatile widget industry. So there is a risk of a future event that affects stock prices across the whole industry, including the Company A along all other companies.

Since the trader is interested in the specific company, rather than the entire industry, he wants to hedge out the industry-related risk by short selling an equal value of the shares of Company A's direct competitor, Company B. The first day the trader's portfolio is:
  1. Long 1,000 shares of Company A at $1 each
  2. Short 500 shares of Company B at $2 each
The trader has sold short the same value of shares (the value, number of shares x price, is $1000 in both cases). If the trader was able to short sell an asset whose price had a mathematically defined relation with Company A's stock price (for example a put option on Company A shares), the trade might be essentially riskless. In this case, the risk would be limited to the put option's premium.

On the second day, a favorable news story about the widgets industry is published and value of all widgets stock goes up. Company A, however, because it is a stronger company, increases 10%, while Company B increases just 5%:
  1. Long 1,000 shares of Company A at $1.10 each: $100 gain
  2. Short 500 shares of Company B at $2.10 each: $50 loss (in a short position, the investor loses money when the price goes up)

The trader might regret the hedge on day two, since it reduced the profits on the Company A position. But on the third day, an unfavorable news story is published about the health effects of widgets, and all widgets stocks crash: 50% is wiped off the value of the widgets industry in the course of a few hours. Nevertheless, since Company A is the better company, it suffers less than Company B:
  1. Value of long position (Company A):
    1. Day 1: $1,000
    2. Day 2: $1,100
    3. Day 3: $550 => ($1,000 - $550) = $450 loss
  2. Value of short position (Company B):
    1. Day 1: -$1,000
    2. Day 2: -$1,050
    3. Day 3: -$525 => ($1,000 - $525) = $475 profit

Without knowing how to hedge, the trader would have lost $450 (or $900 if the trader took the $1,000 he has used in short selling Company B's shares to buy Company A's shares as well). But the hedge - the short sale of Company B - gives a profit of $475, for a net profit of $25 during a dramatic market collapse.


Share market strategies

The daytrader

  1. Opening range breakout
  2. Market timing
    To buy Satyam after it was rescued from brink of bankruptcy, you had to have huge confidence in your ability to read trends.
  3. Elliott wave trader
  4. Hedging
    1. What is hedging?
    2. How to hedge?
  5. Rules for investing
  6. Moving average
    1. MACD
    2. Stochastic oscillator
      Indicates whether market's moving to new highs, new lows or just moving nowhere.
    3. Bollinger bands
    4. Relative strength index
  7. Swing trading guide
  1. Trading for a living
  2. Short term trading strategies
    Gaining the knowledge is the first step to learning how to trade on the open market.
  3. Price action trading
  4. Range trade
  5. What is a swing trader?
  6. Follow the trend
    1. Trend following strategy
      Traders violate it surprisingly often!
  7. Initial public offering
  8. Options contract
  9. Advanced option trading strategies
  10. Futures market
  11. Exchange traded funds
  12. New fund offer
  13. Commodity trade finance
  14. How to be a successful trader?
    For those who do not know about day trading.


What can you do with LinkedIn?

Socializer
FREE service to make updating your social networks a snap!
Polls
We all want to be the go-to person with the latest news, the most intriguing viral content, or the hidden gems followers wouldn't have otherwise found. To be honest, if there were no way of earning money from blogging, there would not be millions of blogs. Easier said than done, though, right?

It actually might be easier than you think - as long as you take the right approach. There are several things that we should do in light of this information. First, let me tell you what not to do.

Don't neglect social! And to earn more, you need more traffic. By using the LinkedIn module of Get Free Followers, you can easily increase your blog's traffic and earn more from your blog's earning source.

  1. How to make money on LinkedIn?
    LinkedIn is all about work, so it makes sense that the best times to share are weekdays, just before or after work. And of course - take help of the social marketing channel - named Get Free Followers!

    WOW! Did you ever think that you can also build a legitimate business that can make money using LinkedIn marketing? LinkedIn has opened up its publishing platform to its millions of users. Everyone can blog on LinkedIn.

When you get a huge benefit without costing money, you must ask, "Is it legal?" Yes, it is. There are a lot of site that can give you millions of pageviews, but, most of them are spam, not legal. You can get a huge traffic in legitimate way by using LinkedIn services of Get Free Followers. So, you can use it without any doubt.

Compare your posts with your competitor

Suppose you have a blog about technology. You know that there are thousands of blog on same topic. To get benefit from your blog, you must compete with those blogs. But, how will you know your place in this competition? LinkedIn is ready to help you. But, you may ask, "how?" When you submit a link on LinkedIn, you can also submit it in a group.

Just find out how many LinkedIn shares other blogs get for same type of post. Compare it with your post. Try to find out, which things are missing in your post and why they are better than you. Many blogger thinks his post is the best one. But, when you will compare it with other blogs, you can know, you are wrong.

Increase pagerank and get search engine's love

All want organic traffic or traffic from search engine. Nothing can give you massive traffic like search engine. But, it is not so easy. Your post must be on first or second page of search results which is very difficult. If you are a new blogger, go to google.com and do a search using a word of a post title from your blog. Maybe you can not see your blog easily. If you want to see your site/blog in the first page of a search results, you need a good pagerank from google.

LinkedIn is going to help you to increase your site/ blog's pagerank and bring your site/blog on the first page of search results through backlinks system.

Image SEO

 

Youtube promotion

  1. Design Float
    Are you looking to get your content posted in Design Float? It's a social bookmarking site where users submit and discuss latest news in the worlds of technology, social media and programming.
  2. Design Shovel
    Design Shovel is a place to find the top rated web design/development, digital art, traditional art and graphic design articles published online. Get Free Followers helps you get into their ratings FREE!
  3. VK photos
  4. How to increase Likes on Facebook Photo?
  5. Make money with Instagram Likes
  6. Get paid to Pin on Pinterest
  7. How to get more Repins on Pinterest?
  8. How to get Retweets?
    One way to get search engine exposure is - post your photos to Twitter - with some good message of course. Then use Get Free Followers to boost Retweets on those.
 
  1. Favorite videos Youtube
    Do you want to be a certified public figure? Increasing your YouTube favorites can attract the attention of the video site; thus, your video can have the chance to be ranked up for a positive engagement. It plays a major role in SEO of that video.
  2. Get Likes on Youtube
  3. How to get more Views on Youtube?
  4. FREE Youtube Subscribers
    If you happened to be one of those who have a YouTube channel, or a brand or a creator using video as a marketing tool then, I'm sure you must be wondering how you can get more YouTube subscribers to your channel and increase the reach of your YouTube videos.
  5. How to promote Youtube Videos?
    Improve your Videos' search engine rankings. What YouTube wants to see is engagement and you can get that in the form of YouTube comments. Encourage others to comment on your video. Encourage discussions to start.
Get Free Followers
Content updates

Email Notification

Share on APSense

Seed Newsvine

Pure Money Making tools

Marketing / SEO   Business Blogs
Blogarama - Blog Directory   Top Small-Business Sites
  bookmark at folkd
Increase Page Rank   Wutzle - Blog DirectoryWutzle - Blog DirectoryMy Blog Rating
My Zimbio   Top Blogs
laksamana786

Newest Posts

Pure Money Making community

 
 
You are here :
Home » Share Trading » Share market strategies » How to hedge?
Bookmark this topic :
Bookmark and Share
 
 
Subscribe to our Content Pure Money Making updates Subscribe to our Community Financial information sites Internet business services Websites of the future

Join Traiborg

 
 
 
 
 
Go to top
 
Home  |  About Us  |  Contact Us  |  Links  |  Submit Your Site  |  Exchange Link  |  Sitemap  |  XML Sitemap  |  Toolbar Copyright © 2009-2014 Pure Money Making.net.
All Rights Reserved.