Njau Posted June 5, 2020 Share Posted June 5, 2020 Help me understand how I can hedge ETF. Quote Link to comment Share on other sites More sharing options...
0 Faraz Posted June 7, 2020 Share Posted June 7, 2020 Exchange-traded funds are a better investment option for mutual funds. You can diversify your portfolio by investing in different market sectors and asset classes like bonds, currencies, and stocks. Adopting ETF to different market sectors will allow you to decide on bullish or bearish gambles on your portfolio or hedge it to protect yourself from risks. There are different strategies that you can put in place to protect your portfolio from various threats. Over the past years, hedging was used in other financial instruments such as futures, contracts for differences, and options. These instruments are based on a derivative. Hedging has been used in these instruments since their pricing depends on intricate mathematical formulas. If you just began investing in ETF, hedging may not be available to you since you may be required to have large minimum requirements as your initial capital that will act as your security. Therefore if you can trade small profits that you make in ETF, you should not hesitate to trade. ETF can hedge your portfolio in many ways. You can use options or futures to hedge your stock or bond position. The S&P 500 Index futures are actively traded and best known in the equity market. Large firms such as the mutual funds broadly use this index. ProShares Short S&P 500 ETF move against the S&P 500, and you can use them in preference to futures contracts. Therefore, you can take a short position in the stock market, and they will be inexpensive and more liquid. Using a short equity ETF to hedge your portfolio will vary when you hedge it using futures. The strategy you use to in short equity ETF is not detailed. However, a short ETF will allow you to access and hedge your portfolio quickly. If the prices in the stock market fall, that of the inverse fund will rise. This price increase will help minimize the losses you will get from the stocks in your portfolio. You can also hedge your ETF position using currencies. There are many benefits that you can accrue by using ETFs to hedge your portfolio. One of them is reduced costs. However, you can face so many risks from hedging. It would help if you came up with hedging strategies before you decide to employ it. Quote Link to comment Share on other sites More sharing options...
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Njau
Help me understand how I can hedge ETF.
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