Hedging is sort of Insurance. Like when we buy a car we also buy an insurance. Similarly other insurance products like life insurance, loan insurance etc. These are basically hedge against certain problems in our lives.
Hedging is the same. If take a trade and hedge it properly rest assured that the loss will be limited because hedge will make sure the losses are limited.
Hedge reduces or eliminates fear, one of the worst enemies of trading. It reduces fear because the trader knows that his loss is going to be limited. In that case hedging allows him to take a bigger trade.
Imagine a trader trading 10 future lots without hedging vs a trader trading 10 futures lots with hedge – both taking a long buy call. And if this is an overnight position the trader trading without hedge will not be able to sleep.
Hedging is not just an insurance as written everywhere, its most important feature is it reduces fear of trading.
What Exactly Is Hedging?
It is an investment or trade with negative correlations. It is like becoming a broker. Take money from one trade and give back money on another – the difference is the profit of the trader.
It is obvious that if the trader is reducing risk in the trade, then profits will also reduce. However, if the original trade makes a loss then the insurance pay off a lot which in turn reduces the losses.
Which type of traders are big hedgers?
Portfolio managers, high net worth individuals, conservative retail traders, and corporations trading in millions of dollars almost always hedge their positions.
Just like insurance hedging comes at a cost. But the benefit far surpasses the cost of hedging especially when the trade goes against their bet.
Instead of losing millions of dollars or rupees, they lose only a few lakhs. But when they make money, it’s only a small price they pay for hedge. All in all over a long period of time they make good money.
Even if it is 30 crores profit made on 100 crores of rupees this is a great return.
It is due to hedge that they are able to risk 100 crores, otherwise it is impossible to trade with 100 crores naked trading.
Do High Net worth Investors Hedge?
Yes they do. They trade with a lot at stake. Sometimes they also trade with borrowed money. When they are trading with millions of dollars they cannot even think of taking a big risk. Naked trading is winner takes all and loser loses all.
Winner takes all is fine, but when it comes to losers lose all, they have a problem.
HNIs mostly buy stocks worth crores and they hedge it with derivatives. When they feel stocks may fall they buy Put to protect the losses from the fall.
How many puts to buy and the strike price to buy puts depends on the pricing of the puts and the risk they feel on the stock’s fall.
If their data suggest there can be a huge fall they buy more puts and if they feel the stock may not fall too much they buy less insurance or hedge. This strategy is known as Married Put mostly done by high net worth individuals.
You Can Read More On My Site
Hi, I am Dilip Shaw, owner of this website. I am a trader like you. I have been trading since 2007, but lost a lot of money till 2010. I then stopped trading and studied options like college exams. Started trading again from 2011 and never looked back since. I did a lot of research, read books and did countless paper-trading before being profitable. You can read about me here.
My conservative trading course since 2014 is helping many retail traders just like you who have a job or business make consistent profits like this:
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Difference Between Other Courses And Mine
What Others Charge for Courses
You can do this course from your home. Some traders make amazing profits like Rs. 16.26 lakhs profit in 5 days though results may differ for all.
This course helps you learn to trade conservative option strategies for monthly income. Once you finish the course you can start trading immediately. You can start trading from any day. No need to wait for expiry. You will make profits consistently.
This course is good if you have a regular job or business. You DO NOT NEED to monitor your trades every second.
What You Get?
Before reading please understand that for all 5 strategies, strike selection will be taught. Strike selection while trading Options is the most essential part to succeed.
You get two conservative non-directional strategies on options, one conservative stock option strategy and two conservative directional strategies on Future & Option combination.
Non directional trades are profitable 80% of the times and make 3-5% per trade (Results may vary).
Directional strategy makes money fast. It does not matter which side the stock moves. In fact you make more when you are wrong in the Future trade. 🙂 Some amazing profits possible here.
The stock option trade makes 30,000 in one trade and if SL is hit there is a way to recover losses plus make 30k in that trade.
Technical knowledge is NOT required. No need to monitor trades every second.
In the course you will learn how to select the strike prices. You learn when to trade, which strikes to sell which to buy, how much profit target you should be looking for, the best place to take stop loss and what to do after taking stop loss – means how to get that money back. The success rate is more than 80%.
Since trades are properly hedged there is no stress in trading my strategies.
I am very confident that you will make money trading my strategies. To help you succeed I offer few months support for FREE.
11 Reasons Why You Should Do The Course:
1. TA Knowledge NOT required
2. NO Software Required
3. Regular Monitoring NOT Required
4. Continue with Your Job
5. Do Course From Your Home
6. 100% Hedged
7. Stress-Free Trading
8. Not too much money needed to trade
9. Scaling Possible
10. One Time Fee
11. FREE Support For Months
To know more Call/SMS/WhatsApp me on 9051143004 or email me now. I know English and Hindi.
Read the details of the course here.
If you want to enroll for the course you can do so here.
P.S: So many years of trading has thought me one thing - it is always better to make small profits month after month, rather than lose money month after month trying to make too much money. It never happens. But small money accumulated month after month can become very big in only a few years.
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Dilip Shaw, Founder
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