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Hedge Is The Best Way To Avoid Huge Losses From Market Crash

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Learn why hedging trades is the best way to avoid huge losses from stock market crash as it protects your losses to a large extend and helps you save money.

Date: 06-April-2017

Market Crash is nothing new or unknown. Once in every three years on an average market crashes and then recovers.

Huge crashes are once in a decade. Remember the crash of 2008-09? For one year stock markets all over the world crashed from January, till March 2009. This was almost a 50% crash, and then it took one year to recover.

As far as I remember, it was one of the worst crash in the history of stock markets. Smaller crashes also do come but not every year. Still here is where many traders and investors lose a lot of money which they earned in last 4-5 years of trading.

So how do you prepare yourself from avoiding crash losses?

It is 9 years now since the biggest crash took place, it is important you must be prepared. I am not saying markets are going to crash now, but I know even if they do I am well prepared.

Point is markets crashes or not, what is wrong in being prepared for a crash?

When markets crashed in 2008-09 I had no knowledge of hedging, Today I have.

Hedging is a kind of insurance which protects your capital to a large extend

For some traders who keep shorting stocks – a crash is heavenly sent. These kinds of traders are rare, but they do exist.

Any new trader who enters the market knows only one thing – first buy then sell. They forget that when they buy something, someone out there is selling them the same. It is a different matter that we never know with who sold us the trade or when we sold, who bought it. In fact we will never know as its everyone’s markets and the job of the exchange is to oversee that, our job is to trade.

Unfortunately even traders who short, if they do not hedge their position when markets keep going up they lose money. That is the reason whether you are a buyer or seller you must learn to hedge your positions.

Benefits of Stock Market Crash:

1. Stock Market Crash is the Best Time To Buy Stocks.

Meltdown of 2008. What if someone bought a few shares of HDFC Bank – a well known non-speculative stock on 13-Mar-2009:

HDFC-BANK-13-MAR-2009

HDFC BANK Ltd. 13-MAR-2009

He would have bought it for Rs.166.85 per share. Let say he invested Rs.100,110.00:

Rs.1,00,110/166.85 = Bought 600 shares of HDFC Bank Ltd.

Let see whats today’s price:

HDFC-BANK-6-APR-2017

HDFC BANK Ltd. 6-APR-2017

It is Rs.1430.00 per share. Let us see his profits:

1430*600 = Rs. 8,58,000.00

Rs. 1 Lakh, 110 coverts to Rs. 8,58,000.00 in 8 years.

800% returns in 8 years.

A Fixed deposit almost doubles the money in same time – 8 years.

Here money multiplied by 8 times in eight years.

Disclosure: Stock markets investments are subject to market risk, please invest after researching well. There is no future guarantee that the above mentioned stock will perform the same in future.

That’s the benefit of a stock market crash, but how may investors actually took that trade? I mean bought HDFC Bank at 166.85 and sold at 1430? None.

Here is where the benefit of stock market crash is never ever seen by anyone. In fact going by the data, not many people bought stocks during that time, else why would markets keep falling for more than one year. The data tells the real story.

Stock Market Crash Is An Opportunity To Buy

Photo-credit: Moneycontrol


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About the author: I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.

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