What is hedging ??
What does hedging mean and what does it consist in?
What does hedging mean and what does it consist in?
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Hedging is an investment aimed at reducing the risk of unfavorable changes in asset prices. Typically, hedging consists in taking an opposite position in the same investment contract.
Hedging is analogous to taking out an insurance policy. If you own a home in a flood-prone area, you'll want to protect your property from the risk of flooding, in other words, by purchasing flood insurance. In this example, flooding cannot be prevented, but pre-emptive action can be taken to mitigate the danger. An inseparable element of security is the trade-off between risk and benefit, which reduces the potential risk, but at the same time reduces the potential profit. Simply put, security is not free. In the example of a flood insurance policy, the monthly payments add up, and if the flood never comes, the policyholder receives no payout. Even so, most people would opt for this predictable, limited loss rather than suddenly losing a roof over their head.
Hedging is an investment aimed at reducing the risk of unfavorable changes in asset prices. Typically, hedging consists in taking an opposite position in the same investment contract.
Hedging is analogous to taking out an insurance policy. If you own a home in a flood-prone area, you'll want to protect your property from the risk of flooding, in other words, by purchasing flood insurance. In this example, flooding cannot be prevented, but pre-emptive action can be taken to mitigate the danger. An inseparable element of security is the trade-off between risk and benefit, which reduces the potential risk, but at the same time reduces the potential profit. Simply put, security is not free. In the example of a flood insurance policy, the monthly payments add up, and if the flood never comes, the policyholder receives no payout. Even so, most people would opt for this predictable, limited loss rather than suddenly losing a roof over their head.
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Machine translated