Videos

What’s the purpose of hedging a stock or your portfolio?

What’s the purpose of hedging a stock or hedging your portfolio?

First, let’s take a look at what hedging really means. In the stock market, when you hedge a stock, what you are doing is limiting or reducing your risk. Because as you know, investing in the stock market is all about managing your risks and the trades and investments you have on hand.

The way you hedge one investment is by making another investment that goes against that primary one. Hedging is not a technique you use to make money, but rather to reduce a potential loss.

When you hedge a stock, you are ensuring that stock against a negative event by making a secondary investment. Meaning, in case your primary investment goes against you and loses money when you are properly hedged, the negative impact will be reduced and you won’t lose as much money.

For example, if you have a big amount of money invested in one stock, let’s call it XYZ. You can hedge that stock, and in case your XYZ position goes lower, at least your hedging position goes higher and it compensates you for that difference. Ultimately that’s the goal, so you don’t lose as much money from your primary investment.

The downside of hedging is that, of course, every time you put on a hedge, it’s going to cost you time, money, energy and resources. Also, if your primary investment is actually going in your favor, and the stock continues to move higher, then this hedge ultimately is going to continue to lose value and it will reduce the profit that you could’ve made in the first place.

You have to be careful because if you over-hedge, it can actually work against you. Your goal is to hedge enough to where you are protected, but not too much to where it can actually cause you even more problems.

#hedgingstock #portfolio #adjustingrisks #stocksrisks #marketrisks #stockportfolio

Posted at: https://tradersfly.com/blog/purpose-of-hedging-a-stock-or-your-portfolio/

🔥 GET MY FREEBIES

Freebies

🎤 SUBMIT A VOICE QUESTION

Question – Hungry for Returns

👀 START HERE: FOR NEW TRADERS

Start Here – for New Traders

🎉 START HERE: OPTION TRADERS

Start Here – Option Traders

📈 MY CHARTING TOOLS + BROKERS

tools

💻 MY COMPUTER EQUIPMENT

Resources: Computer Gear

💌 GET THE NEWSLETTER

YouTube Newsletter Signup

🔒 SEE OUR MEMBERSHIP PLANS
https://tradersfly.com/go/members/

📺 STOCK TRADING COURSES

See All Our Trading Courses

📚 STOCK TRADING BOOKS:

Our Stock Trading Books

⚽ GET PRIVATE COACHING

Coaching for Stock Traders

🌐 WEBSITES:

Home Version 2.0

Home Page

Homepage 2.0

Home

Home

💌 SOCIAL MEDIA:
https://tradersfly.com/go/twitter/
https://tradersfly.com/go/facebook/

⚡ SUBSCRIBE TO OUR YOUTUBE CHANNEL
https://tradersfly.com/go/sub/

💖 MY YOUTUBE CHANNELS:
TradersFly: https://backstageincome.com/go/youtube-tradersfly/
BackstageIncome: https://backstageincome.com/go/youtube-bsi/

📑 ABOUT TRADERSFLY
TradersFly is a place where I enjoy sharing my knowledge and experience about the stock market, trading, and investing.

Stock trading can be a brutal industry, especially if you are new. Watch my free educational training videos to avoid making big mistakes and just to continue to get better.

Stock trading and investing is a long journey – it doesn’t happen overnight. If you are interested to share some insight or contribute to the community we’d love to have you subscribe and join us!

Articles You May Like

Stocks making the biggest moves midday: Vertex Pharmaceuticals, Moderna, Lennar, Salesforce and more
How to avoid a tax bomb when selling your home
Cathie Wood says her firm is testing a more aggressive strategy that would be ‘Ark on steroids’
The Ultimate Guide To Home Fragrances For The Holidays And Beyond
Mortgage refinance demand plunged 15% last week, but could now reverse