How does hedging work?
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Please help answer the following questions about hedging.
Explain and give an example of how hedging works. Why does hedging provide price protection? Why does hedging remove further gains and losses?
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Solution Summary
This solution helps explain how hedging works and provides an example. It also discusses why hedging provides price protection and why it removes further gains and losses. The explanation is given in 451 words.
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Problem: Explain and give an example of how hedging works? Why does hedging provide price protection? Why does hedging remove further gains and losses?
Solution:
A hedge is a position established in one market in an attempt to offset exposure to price fluctuations in some opposite position in another market with the goal of minimizing one's exposure to unwanted risk. To put it simple, hedge means that a buy some asset in one market and sell that same asset (or similar assets, gold and silver for example). in a different market, so that regardless of the price change of this asset, I ...
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