Newcomers to the stock market often are lured into the industry thinking about how they could earn millions and fly away to rest on the islands in the Caribbean. The reality, however, often turns out quite different and the majority of them end up leaving the market, closing their accounts, and cursing the whole world. Such investors simply did not take care to minimize potential risks, for example, through hedging.
A hedge is an investment that helps mitigate financial risks. A hedge works by investing in financial instruments that will move in the opposite direction of the core investment so that if the core asset investment declines, the investment hedge will offset or reduce the overall loss.
And why hedging is important? Vladislav Petlenko, Chief Investment Officer of Sigma Global Management shared his comment with the internet portal Fintalk:
"Except in very rare cases, hedging always costs some money. It is done either by paying some premium at the time of buying a hedged long position making such exposure more expensive than without hedging or reducing the estimated return on the position. In the face of volatility in commodities prices (such as oil), hedging can be one of the main ways to keep a business profitable for producers and traders".
To read the entire article by Fintalk follow the link: https://fintolk.pro/ogranichit-riski-chto-takoe-hedzhirovanie/