What does hedging trading mean?
2023-06-22
Summary:
Hedge trading aims to reduce risk by simultaneously engaging in two or more opposite transactions. It is typically used in financial markets such as stocks, futures, foreign exchange, and derivatives markets. Investors engage in two or more opposite transactions at the same time to offset risk.
Hedge trading is a financial trading strategy aimed at reducing risk by simultaneously engaging in two or more opposite transactions. This trading strategy is typically used in financial markets such as stocks, futures, foreign exchange, and derivatives markets.
The basic principle of hedge trading is that investors engage in two or more opposite transactions at the same time to offset risks. For example, if an investor believes that the price of a stock will rise but is also concerned that the market may fall, they can simultaneously buy and sell the stock. In this way, regardless of the market trend, he can maintain relatively stable returns.
Another important feature of hedge trading is that it can be used to protect investment portfolios from market fluctuations. For example, an investor may own multiple stocks but be concerned that the market may decline, leading to a decrease in the value of their investment portfolio. To reduce this risk, he can engage in both short and long trading in stocks and futures to offset the impact of market fluctuations.
Hedge trading refers to the simultaneous trading of two types of market-related products, one being long and the other being short.
Market correlation refers to the roughly identical trend of two types of products when the macroeconomic and financial environments change.
Hedging is the expansion and upgrading of arbitrage, as reflected in the following points:
1. Hedge trading is a basket of contracts, and for another basket of contracts, the risk is fully dispersed, which can avoid the phenomenon of traditional arbitrage in extreme conditions where the price difference does not return.
2. Compared to traditional arbitrage, it is more convenient to program, and theoretical returns can be referenced in the model to control the increase and decrease of positions.
3. Market adaptability is stronger than alpha arbitrage, and it can also profit through dynamic methods in bear markets. Arbitrage refers to the trading of price differentials between two contracts with 100% correlation between different delivery months or exchanges of the same commodity, which is based on the k-line chart of price differentials and involves buying low and selling high.
The risk and return of hedging transactions are usually relatively low, as they aim to reduce risk rather than pursue high returns. However, hedging transactions require investors to possess certain financial knowledge and skills in order to accurately assess market risks and opportunities and develop effective trading strategies.
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