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| Authored by: PJ on Monday, April 16 2012 @ 07:15 PM EDT |
Hedging is of value if you have a lot to lose,
either way, depending on unknowable future
events. It minimizes your gain, but it also
protects against total loss, which is what sent
guys jumping out windows in the Great Depression.[ Reply to This | Parent | # ]
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| Authored by: Wol on Tuesday, April 17 2012 @ 11:53 AM EDT |
Hedging has value in Forex. I've used it myself with my mortgage. Etc etc.
Bear in mind I'm in the UK. If I sell something to America, to be paid for in
six months time, but I have to pay for all my materials in Sterling now, I've
got a lot of risk tied up in exchange movements. So I want to hedge - I pay
somebody for the promise of a guaranteed exchange rate in six months time. If
things go right, I don't need the promise and the other guy walks away from the
deal quids in. If it goes wrong, he makes a loss and at least I get enough
pounds back to break even on my sale. THAT is what hedging is for.
With my mortgage, I hedged the interest rate. If rates go down, I'm out my hedge
but save on mortgage payments. If rates go up, I get help to pay them.
Then the bankers saw it and thought it would be a good way of gambling ...
hedging *should* be a way of risk-averse people off-loading the risk as a form
of insurance.
Cheers,
Wol[ Reply to This | Parent | # ]
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