What does hedging mean? What’s the difference between futures hedging and arbitrage

Hedge this kind of means, generally we often see in the futures trading market, in the following content we will mainly hedge is what it means, it is a kind of existence in the market, its main characteristics, functions and so on, to talk about. Let’s go and have a look without delay. I hope we can help you.

We have talked about futures arbitrage instructions before, which makes us understand what arbitrage is. I believe that many investors sometimes think arbitrage and hedging are concepts, but actually they are not. Let’s first understand what hedging means, and then understand the differences between the two.

Hedging is a financial term in the whole market, which mainly refers to an investment that investors deliberately reduce the risk of another investment. It is mainly a means to gain profits from investment by reducing business risks. And arbitrage is to point to the real asset that investor holds in the hand, financial asset, undertake buying to its lower price under the circumstance that has two kinds of different price, higher price sells, earn this kind to do not have risk income difference.

Hedging in the market mainly includes the following contents:

First, it is a situation in which an investor carries out two related products at the same time, but in opposite directions, the amount is equal, and the final profit and loss is equal.

Second, in the foreign exchange market, hedging is often seen, mainly in order to avoid the risk caused by single-line trading. Single line buying and selling mainly refers to the market investors bullish on a currency on the short, and vice versa if not bullish on the short position.

Third, in the futures market, for investors, after the establishment of a position, sometimes most investors do not end the transaction through spot delivery, but through hedging, which improves the liquidity of the futures market to a certain extent.

The main differences between hedging methods and arbitrage methods in the market are as follows:

1. Although both of them belong to the trading behavior of buying good and selling bad in the market, arbitrage is also a kind of hedging under certain conditions, which also shows that the scope of hedging is larger.

2. For arbitrage, it is more about correcting some internal mistakes and irrationality in the market and finally getting it back on track. Carry on arbitrage to also be to need both sides breed to have high correlation under ordinary circumstances, can rise together fall together namely, what investor earns is relative profit.

3. Just like the above arbitrage is a trend trade, while hedging is a trend trade. It does not pay attention to the correlation between varieties, but pays more attention to the strength of volatility, and knows more about hedging mechanism related content.

4. Arbitrage is an active way to take advantage of opportunities existing in the mechanism to capture profits, while hedging is more about controlling risks, and the final desired results are all for obtaining profits.

This is the end of today’s article content, if you have some interest in the financial market means, such as: etc., please pay attention to this site, here will not let you down, thank you!

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