What is Hedging?

Hedging Strategies in Option Trading

What is Hedging Strategies, How to use Hedging Strategies.Hedging is like a fence or boundary which is protect your garden from cow or goat etc.Hedging Strategies is boundary wall,it can save from loss, Hedging in stock market its help for minimize a lose percentage in right way use.Hedging a  tools in stock market which is minimize or less customer risk.Hedging strategies used by mostly trader when they stuck in wrong trade.Hedging strategies is useful technique for save money in risk zone.

Hedging Strategies with Example

If any trader buy a share in cash market and he think its will go up.Suppose that  trader buy 500 quantity at rate of 1000 rs of  XYZ Company share but share goes down,its a risk for trader in this zone Hedging Strategies is very help full.Always Hedging Strategies use when share goes down, its never use on equal rate because in that case is always show no loss no profit.Trader buy a share in Cash market,he will hedge to this with option or future trade.

Hedging Strategies with Option Trading

Trade has bought a share but its goes down then how will use hedging strategies.

CASE MARKET
SHARE BOUGHT	YES
PRICE	1000
LOSS/PROFIT	LOSS
USE HEDGING

Rules.1-

If share buy in cash market then same share PUT  will be buy in option trading.what is option trading?this is already share on previous post.

Rule.2-

Hedging Strategies don't use on same price or strike price,if share price is 1000 rs then you should use 950 strike price put in option,price gaping is must for minimize loss.

Rule.3-

If your share price goes up of purchase price then hedging should finished that time.

Rule.4-

Don't make position for long time,its should closely watch and book a profit if you see suitable amount and book profit or makes position again on same rate.its right way for use a hedging strategies.

Hedging Strategies with Future Trading

In term of hedging strategies with future trading,some rules as follow-

Rule.-

Quantity is most important,if you are buy a 1000 a share,you should must buy 1000 share in future trading in lots form.Hedging strategies always use for minimize risk or gain profit on one side.
In my opinion hedging strategies is very helpful term for trader but this is always use in gaps in prices of cash market or option or future trading.

Hope you understand this article,What is Hedging.If there is any question related to this article, then you can ask and comment.

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