What is Hedging?

What is Hedging?

The term “Hedging” means, to be preserved against a loss. Hedging, which is a financial instrument, is trading same or very similar assets in different markets by dividing them into equal amounts. This way, one can preserve himself against losses which may occur through price changes.

An example for this is to buy on oil in binary option trading or purchase the stocks of a certain company while selling the stocks of another company in the sector which are equally available later on. This way, with the ability to predict price movements and risks, investors preserve themselves against possible price changes. In other words hedging means safeguarding against the risks emerging from a position in cash market by buying positions in other markets.

Through binary option trading you are entitled to trade an asset with a certain amount ( such as a currency, stock, commodity, metal or security) on an agreed price until the contract expiry without any engagement. So the loss that may occur will be either as same as the amount you paid for the option trade or 15% less than that. Some binary option brokers refund 15% of your loss. Let’s say that you have $200 and with $100 out of this amount you buy a currency doing a binary option trading. You buy on oil with the remaining $100. You secure the lost amount on currency because you gain profit on oil.

This is the simplest hedging strategy and it is certainly required to research the market analyses properly before using hedging strategies.

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