MCX has introduced gold option contracts that start trading today. It is good news for option traders who are profitable trading options. Liquidity in Gold Futures trading is very good which will show in Gold Option trading too.
However you must hedge your trades – without hedging you are at 100% or more risk.
Hedge is a trade that protects another trade – so basically you become a broker – take money from one hand and give from another.
Hedge reduces the risk of adverse price movements in any trading object – equity or derivatives. A hedge is taking opposite position in same or related security. Pair trading for example is a part-hedge not fully hedged trading.
Basically hedge in an insurance for loss in trading especially derivatives. Like for medical emergencies we buy medical insurance, for accidental death we buy term insurance – same way for trading losses we can buy insurance.
Hedge reduces potential risk and limits the loss to a large extend. It also takes away some gains, but is a boon when the original trade is going for a huge loss. For overnight positions hedges are recommended. But hedge comes at at cost – it is not free.
For example when you could have made 10 points profits, hedge may reduce it to 7 points. But if you could have lost 10 points – hedge will reduce it to 3 points.
Therefore the joy of trading with a hedge is unmentionable. Imagine difference between a trader trading without hedge and a trader trading with hedge.
One is at a unlimited or huge risk and another is at limited profit or loss. A profit is a profit even if limited.
If you are still doing trading without hedge you can do my course and change your trading results from tomorrow itself.
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Dilip Shaw, Founder
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