How do hedges work?

Hey, Hope someone can help me out. How do hedges work and how do you find what to hedge? I know they work and people use it to manage risk but how exactly does it work, and how do you do it to make $? Can any experienced traders help or point me in the right direction where i can read up to get a better understanding?

You don’t hedge to make money. You hedge to offset all or part of an exposure you have. For example, a farmer may hedge his corn crop by going short in the futures market to lock in his sales price, thus offsetting his exposure to potentially adverse movement in price by the time he comes to market.

Hedges - they are best kept for this purpose only :-

Is that the driveway up to your house, ppf?

It will, it will be my friend, you see, this time next year we’ll be millionaires!

That’s the spirit, we have half the battle won already!

Then this time the year after next we’ll be able to afford a hedge for the other side.

Then before you know it, It’ll be time to dig the foundations :slight_smile:

If it’s anything like the Peak District we’d never get planning permission.

Still, hedges are nice.

When you got enough dosh you can get planning anywhere.

It can be tough in a National Park. I have just had to jump through hoops to remove a leaky 1970s flat roof from a Georgian house! Got there in the end. Anyway, apologies to the OP for the UK planning law siding we have taken this thread into.

To compound the felony, I don’t hedge in Forex myself, so don’t even have anything relevant to add.

Apologies!

ST

With luck we will have done him the world of good and put him off for life :slight_smile:

If I could figure out the numeric smilies I would have given that a lol smiley. Was going to go with ‘59’ but was not sure that it was a laughing icon and wouldn’t want to risk that it was blowing a kiss or something!

Khans academy great non trading site, still i think you will find this as informative as UK housing law or even more

PS thumpsup smile?

I dont really know what hedging is or what hedge funds are…

I am assuming hedging is where you are say for an example on a buy and for some reason you enter the same lot size or partial lot sizes on a contra trade, a sell…

And if this so, then you wont be making or loosing any money as the market moves ( assuming you are on same lot sizes on both trades )

They call it a locking in trade in these parts. Its usually done by someone who is not sure what the market is doing or thought he knew but now its moving south…so in a moment of panic or mental block they enter a contra so that their margin is protected and they buy time to sit and figure out what they going to do.

Now all of the above is my assumptions on what a hedging is…and if it is then all I can see is poor trading.

Funny you should say that, because I’m sure that the hedge fund traders themselves don’t bloody know what they are trading!!!

But supposedly, the idea of a hedge fund is to reduce risk, by for example, if you buy Oil as your main investment you might also buy some wind farm technology investment, so if your Oil bombs you’ve got profit from your wind farm investment.

But it’s total bollocks, why the heck would you want to decrease your profits when things go right on the oil side? It’s a sales technique to dupe your average investor into thinking that a hedge fund is quite safe because of the risk limitation idea, but in truth it’s a term coined for any old rubbish investment which is actually a high risk strategy that is hidden from people under the nice term ‘Hedge Fund’

Hedging is the process of taking a position in an alternate instrument or market which is intended to reduce or eliminate some risk associated with a current position or portfolio. For example, a portfolio manager might short the S&P to hedge a portfolio of stocks against a negative move in the overall market. The term “hedging” used by forex traders to mean directly offsetting an open position by opening a second opposite one is not considered hedging as anyone outside retail forex would define the term since you’ve got no risk at all left over.

Hedge funds may have once had hedging at heart (like creating long/short portfolios), but these days their strategies run the full spectrum, many of which have no hedging at all involved.

There ya go:

Hedge (finance) - Wikipedia, the free encyclopedia

For most in FX I would suggest that hedging will not be an issue. Save perhaps one? Some might trade for example multiple time frames at the same time. Say shorting the 4h pull back on a long daily trend. It is entirely possible to have multiple positions open across varying TF’s, some being contra to the longer trade direction. Often I will have four or more trades running… 3-1, 2-2 etc. I guess its a little like phasing into and out of a position or grid trading! LOL

Anyways guys… I’ve got a hedge to cut both sides! LOL Also planting 12 hectares of tree’s for Black/ Burgundy truffles in seven years? Now its a punt for sure… but the vines pay back 50 cents a kilo. Truffles… $1500 plus a kilo! I like those odds! :18:

Its a weekend post… I apologise in advace! :18:

people don’t think outside the box enough.

hey RC send me a truffle, Ive never had one ! I hear a Birthday is coming up soon, mine too!

“If there’s a bustle in your[B] hedge[/B] row, don’t be alarmed now. It’s just a spring clean for the May queen”
–Led Zeplin !

can’t help it… silly buggers on the weekend!

Here’s one of my accounts, I’m pretty sure there’s some fx style hedging going on in there. I’m not like Cubanpip though, I can’t walk on water yet LOL