Hedging involves taking positions in securities or derivatives to offset potential losses, helping investors protect their portfolios from adverse price movements.
Hedging offsets potential losses by taking an opposite investment position. For example, buying a put option on a stock you own can offset losses if the stock price drops.
Hedging reduces risk by offsetting losses, stabilizes cash flows, aids long-term planning, protects against volatility, diversifies portfolios, preserves profits, & manages costs.
The types of hedges include Commodity Hedging, Currency Hedging, Interest Rate Hedging, Equity Hedging, Credit Hedging, Operational Hedging and Volatility Hedging.
Speculation aims for high profits through risky bets on market movements, while hedging focuses on reducing or neutralizing risk in an existing investment portfolio.
Speculation involves high risk due to predicting market directions, whereas hedging involves lower risk by aiming to protect against losses.
Speculation involves buying or selling assets to profit from price changes, while hedging takes positions opposite to current holdings to offset potential losses.
Speculation seeks gains from market volatility and price movements, whereas hedging aims for stability and reduction of losses in adverse market conditions.
Speculation typically has a short-term focus on immediate trends, while hedging can be short or long-term depending on the investment being protected.
peculation uses direct investments in stocks or derivatives, whereas hedging employs derivatives like options, futures, or swaps to counterbalance existing investments.
Speculation suits risk-tolerant traders seeking high returns, whereas hedging is preferred by investors aiming to protect their existing investments.