How to Hedging in Stock Market | Hedging Techniques in Indian Stock Market
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Learn How to Hedging in Stock Market to get protection against any potential threat to your investment and what are the techniques used for hedging in Indian stock market
How to Hedging in Stock Market ?
As an investor, you must be aware of the term hedging in stock market. It is the method to protect your portfolio. As we all know, protection or prevention is better than cure. Thus, it is as important as appreciation. The hedging techniques are considered as advanced investing techniques, and it is believed that you need a lot of expertise to learn heading techniques. But it is not so; you can learn hedging in stock market even if you are fresher. Learning about how to Hedging in Indian Stock Market works will be beneficial to you at some point of time.
First of all, understand what is hedging in stock market. Hedging is a risk management strategy used by traders to offset the risk associated with the investment by taking the opposite position in the underlying asset. Hedging techniques are typically used once the initial investment is made, and to protect that investment against the adverse market situation, traders use these hedging strategies.
Understand Hedging in Indian Stock Market with Daily Life Examples
Hedging is happening all around us; we need to understand it more thoroughly. Hedging is like getting car insurance to protect your car from uncertain events like theft, accident, or other disasters. Just like we pay a small amount as insurance to get the protection of our car, we pay the premium to protect our stock. Insurance claims may not help you recover 100% of your damage, but they definitely help in reducing the burden. In the same way, hedging in stock market may not eliminate the risk completely, but of course, it helps reduce its overall impact.
Many people use Hedging in Indian Stock Market, such as portfolio managers, Investors, corporations, etc. They use hedging techniques to reduce the intensity of the risk on their position. Though we said earlier that learning hedging is simple, but it is not as simple as paying car insurance; thus, you must learn from the experts.
Hedging Techniques in Indian Stock Market
Traders may utilize any strategies they feel are good, but the most common ones are derivatives, options and futures contracts. Options are widely used instruments for hedging purposes. You must also remember that, along with reducing the risk on the position, you are also limiting the chances of profit by hedging. Before implementing any hedging strategy on your position, you must check if it is worth paying the premium. Is your premium justifiable? Because the main aim of hedging is to protect your invested money rather than to earn you money. You cannot pay Rs.100 to protect Rs. 100. This would not be wise.
How to do Hedging in Stock Market
There are many strategies you can use to hedge your funds; we shall discuss the best 3 commonly used hedging techniques in Indian stock market
1. Asset allocation : Asset allocation means diversifying your portfolio with different financial instruments such as keep 40% in the stocks, 10% in equity, another 10 % in foreign currencies, 20% in bonds or mutual funds, and the last 20% in some long-term investment, this is just an example, you can change the percentage as per your trading needs, and protect your portfolio from crashing.
2. Structure : This can be done by investing some part of your funds in the debt instruments and the remaining in the derivatives. Debt ensures stability, and the derivatives will provide protection against any potential risk.
3. Options contracts : There are call options and put options that help protect the portfolio directly by selling or buying the stock and entering into the reverse position from your current position.
So, we have seen how to hedging in stock market of India and what are the main hedging techniques used by the various investors. If you want to learn the concept of hedging in Indian stock market and various strategies to apply in different markets, give a call back now.