Hedging Explained | Academy of Financial Trading
-
Upload
academy-of-financial-trading -
Category
Education
-
view
276 -
download
4
Transcript of Hedging Explained | Academy of Financial Trading
The Academy of Financial Trading
Hedging Explained
Hedging explained
Any Advice or information provided by the Academy of Financial Trading is General Advice Only - It
does not take into account your personal circumstances, please do not trade or invest based solely
on this information. By viewing any material provided by the Academy of Financial Trading or using
any information or tools you agree that this is general educational material and you will not hold any
person or entity responsible for loss or damages resulting from the content or general advice provided
here by The Academy of Financial Trading, its employees, directors or fellow members. Futures,
Contracts for Difference (CFDs), Options, and spot currency trading have large potential rewards, but
also large potential risks. You must be aware of the risks and be willing to accept them in order to
invest in CFDs and leveraged forex markets. Don't trade with money you can't afford to lose. No
representation is being made that any account will or is likely to achieve profits or losses similar to
those discussed in any material provided by the Academy of Financial Trading. The past performance
of any trading system or methodology is not necessarily indicative of future results.
Risk Warning
Hedging explained – the basics
Hedging is often considered an advanced investing/trading strategy but the principles of hedging are fairly simple
Most of us, whether we know it or not, actually engage in hedging in our everyday lives!
When you take out say insurance to minimise the risk that a possible injury will erase your income this is a hedge!
Okay, Okay – so what’s the fuss and why should we bother? And how do we apply the same?
Hedging explained
Hedging
A modest example….
Suppose we want to invest in the budding industry of Muffin manufacturing, but this industry is often susceptible to sudden changes, hence volatile
We might believe, despite this, that company A, who is the leader in its sector, will perform exceptionally well and its share price will rise
We might also know that its competitor, company B, will underperform in the best instance for both
Let us now imagine a sudden death occurs from Muffin consumption so the shares of Company A fall. In this event we might have hedged our positions by going short on Company B – that way we essentially reduce risk and hope to make an overall modest profit
Hedging explained
Hedging
Hedging applied to trading
In trading we are using a multiple range of asset classes, so we are not limited to the Muffin manufacturing sector!
Hedging would occur if we were to take both long & short positions on two asset classes both within the same sector
That way we know that should an outside event occur that affects all asset classes in this sector we will be hedged
Hedging
Another way to engineer this is to actually trade asset classes that are unaffected by global macroeconomic events
In effect this means the markets in our overall portfolio are not affected by the same underlying inputs
Hedging explained
www.academyft.com
Contact us anytime on
Ire: +353 (0) 1 553 0174UK: +44 (0) 207 760 1614
USA: +1 347 627 0001
Keep Learning!
academyft.com