How to Make Hedging and Why?

The fort of Chittor is an excellent human intervention that stands its ground till this day. It holds stories of courage, chivalry, drama, and love in its walls. The fort of Chittor is the largest fort in India, with intricate towers and walls that have stood since the Maurya Empire rulers built it near Udaipur. Fort Chittorgarh, also dubbed the Fort of Chittor, has a one-mile-long twisty road leading to it with seven gateways guarded by a watchtower and iron-spiked doors.

All these pronounce the indestructibility of the fort. The security factor and a major form of protection of the Rajput empire thus stood on its borders. A fort thus makes the empire impenetrable and minimizes the risks, quite similar to a hedging tool which does the same for your shares, but with less drama.

How to make Hedging and Why

According to the Balance, a hedge is an investment that protects your finances from a risky situation. Hedging is done to minimize or offset the chance of your assets losing value. It also limits your loss to a known amount. It’s similar to home insurance. You pay a fixed amount each month. If a fire wipes out all the value of your home, your loss is the only the known amount of the deductible.

Hedging in share, commodity, currency markets is a must to reduce the loss arising on account of the wide fluctuations in the value of transactions. It minimizes the risk due to volatility and is done by taking two opposite positions.

There are two possible ways of Hedging,

  1. Option Derivative
  2. Diversification

Most investors who hedge use derivatives. An option is the most commonly used derivative. It gives you the right to buy or sell a stock at a specified price within a window of time.

Here’s how it works to protect you from risk. Let’s say you bought stock. You expect the price to go up but in case it backfires you want to fortify it. Here is now your opportunity to hedge using a put option. You pay a particular fee to buy the right to sell the stock at the same price you bought it for. Hence, if the price falls, you exercise your put and make back the money you just invested minus the fee.

Diversification is another hedging strategy. If you own an assortment of assets they don’t rise and fall together. If one asset collapses, you don’t lose everything. For example, most people own bonds to offset the risk of stock ownership. When stock prices fall, bond values increase. So you get a neutral way out.

There are more such strategies and tools to protect you.

If you wish to protect your stocks and make another fort of Chittor, go ahead and contact Goodwill at admin@gwcindia.in or at +91 – 44 – 4020 5050. Brokerages like goodwill are an excellent way to begin trading the right way and if you want to hedge there is no one better to lead you in the right path.

Make the right choice and tick your boxes.

 

 

 

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