Oakley Sunglasses Outlet Managing your portfolio risk t

Managing your portfolio risk through speculation and hedging

Before we look into hedgers and speculators, let’s read a little into what is risk and future contracts and why do we need future contracts in the first place. Starting from risk, investment risk is the chance that in future the profits or returns will be smaller (or no return at all) than expected. Investment risk arises from uncertainty, and because uncertainty is always there, risk cannot be separated from any form of investment.

Coming to the futures contracts, they are the agreements between two parties to buy or sell some commodity in the future at current rates (or the price decided at the time of contract). In this case the seller minimizes the risk of a cut down in prices by foregoing some potential gains, while buyer as Oakley Sunglasses Outlet sumes the risk expecting larger yields.

In portfolio management hedging is regularly used to secure the investors from some negative events in the future. In a simple futures contract, where A agrees to deliver some commodity to B after eight months at current prices, A is making sure that if the price for that particular asset goes down, he/she will remain indifferent to that slump. adverse inflation).

Hedging is used to reduce risk, but any reduction in risk means a reduction in expected profits and in the end it comes down to investor’s intuition that whether they want to go for “more profits” or “less risk”? Normally the investors who are in doubt (scared of market fluctuations) will go for hedging, just to make sure in case of some unfavorable occurrence; the loss will be minimum (or no loss in case of perfect hedging).

Where the hedgers are minimizing the risk, someone is needed to absorb that risk (obviously in expectations of large returns). In simple words speculators are investors, ready to assume high risk while expecting high returns. Though speculators are quite similar to normal investor, and speculation process is almost the same as investment, there are some minor differences. Speculation is short term, high risk and high return form of investment, where n Oakley Sunglasses Outlet ormal investments are mostly for longer periods of time. He has 18 years of experience in the marketing and trading industries and has been helping retailers and startups with their product sourcing, promotion, marketing and supply chain requirements.

Reader CommentsNo comments yet.

You must login to leave a comment.

Related ArticlesWhat If

Do you remember the exact moment in time that you decided that real estate investing was the vehicle you wanted to use to reach the financial success you always dreamed. Read Article

October 2008 Legislation Can Help You Save Your Home From.

If you are among the thousands of homeowners who are facing foreclosure in the current housing market, you certainly are not alone. Many families are finding that they cannot. Read Article

Tips for Recovering Unclaimed Money

With millions in unclaimed money being registered every day in the country, owners of these funds, along with the caretakers of unclaimed money, are equally at loss. These huge. Read Article

Maxi, Mini, TESSA and PEPs: Where Did They Go?

If you have been a responsible saver in the UK, you may be familiar with terms like TESSA and PEPs. How Oakley Sunglasses Outlet ever, recent years have seen new terminology come into play in the form of. This gave birth to a new sector called the fast food sector. The. Read Article

Living in UAE Higher education dilemma for your kids

Despite having a number of world class business facilities, hotels, and everything that supports a lifestyle of highest quality, UAE was lacking in one department. That is the. Read Article

Real Estate professions Which one to go for

Real Estate industry accommodates more professionals than you’d have imagined. Normally, we can think of only real estate agents or brokers when talking about careers. Read Article

Role of Top Management in Organization

Management is the act of getting things done, simply through people, to achieve desired goals and certain objectiv Oakley Sunglasses Outlet es. Implementation of any successful strategy in an. Read Article