By investment-guru.com
The term hedging is based upon a specific investment strategy, in order to avoid losses. There are several ways to make Hedging: For example, with the options ” Put” and ” Call” , with short selling , with Future lectures and so on.
The aim of hedging strategies is to prevent possible catastrophic losses. For example, if our biggest investment does not go well, hedging would cover the main loss completely or at least partially.
Essentially, you have to go short on the market (take a “put” position) to its currency to sell and then buy it back at a low price. For example: I am selling a currency or number of shares , which I do not possess , and I collect a payment. Now I owe a financial intermediary. I need to buy again within a certain time to pay back my debt. The economic advantage is again buy at a low price and take the difference .
The best currency pair is the combination of GBP / JPY as it currently has the highest interest rates. In any case, we can independently choose the interest. One must then control the rate of the broker and this is not difficult . Before you open an account with a broker , you should check if the broker allows the opening of a position for an unlimited period of time and whether he himself claims the commission .
The commissions are definitely beneficial , even if it initially appears to us not as if the agent asks for a fee for the maintenance of the position , he offers us very likely to leave the position open for long periods .
Then you should check up on how much net your account has. The hedging strategy really requires a lot of money. If the currency pair GBP / JPY is desired , for example, as a cover , one needs at least $ 20,000. This is necessary to ensure the maximum monthly period for the pair GBP / JPY in altitude of 2000 pips . One must also not forget that if two different positions are open at two different brokers , you have to pay the spread twice . The first trading day and interest are in fact only necessary to cover the cost of the spread .
This is very important in order to get any request for margin ( profit margin ) .
Ultimately, the money management helps us to be able to manage such a situation here . We recommend monthly profits to be obtained. Doing so may cost a fee , so you should therefore check with your own broker , when he allowed a cash withdrawal during the opening of the positions or not.
The hedging is therefore not a strategy for everyone due to the amount of money that you need in order to implement this strategy into practice .
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