Hedging Strategies

Introduction to Hedging:

Hedging involves using financial instruments to offset potential losses in an investment. It is a risk management strategy designed to protect against adverse price movements.

Common Hedging Techniques:

• Options: Use options contracts to protect against price declines (e.g., buying put options).
• Futures: Use futures contracts to lock in prices for future transactions.
• Diversification: Spread investments across different assets to reduce risk.

Using Derivatives for Risk Management:

Derivatives, such as options and futures, provide flexibility in managing risk. They can be used to hedge against market volatility, interest rate changes, and currency fluctuations.