By enabling this option for coins, you ensure their automatic transfer to a hedge fund and conversion to stablecoins
Different Types of Hedging – Asset Management Tools and How They Work
Experienced investors constantly seek new tools to protect their assets. Economic instability, fluctuations and inflation forcing investors to look for new tools to protect their money. Hedging is a recognized effective way to do this. What is hedging? The term means the transactions that compensate for losses. That method enables people to significantly reduce eventual losses due to sharp changes in the value of assets. It's important for anyone looking to preserve their money. It can be simple or complex – depending on the actions of the investor.
Protection Strategies Overview
There are six main kinds of strategies, each suited to different needs and market situations. Let's examine the main views and their features.
Classical (Pure)
A widely used method that involves using direct and reverse positions in a liquid market. Let's look at the situation: planning to buy shares can be hedged using sell futures on these stocks. This reduces the risk of loss in the event of a sharp decline in cost.
Complete and Partial
Complete strategy is accomplished by creating positions that fully compensate to cover possible losses. Partial hedging is used to maximize danger reduction while retaining some profit potential if the market moves favorably.
Anticipatory
That strategy uses cost movement forecasts. Investors work with these techniques to protect against possible fluctuations and inflationary trends. Instance: if a sharp currency exchange rate change is expected, businesses can control jeopardy in advance through currency futures to prevent losses.
Selective
Investors choose specific positions to protect. This is convenient when danger on certain assets is assessed higher than others, allowing flexible risk management focused on vulnerable areas.
Cross
A strategy of protecting one position with different instruments. The situation: an investor holding one company's stocks might use options on another company's shares in similar conditions to reduce overall risk.
Options Way and Rehedging
Options line involves implementing options strategies to protect investment positions. Investors use rehedging when market conditions change, helping protect positions while benefiting from options cost fluctuations.
What are Hedge Funds
It operates as specialized investment collectives that implement innovative approaches to financial asset management so as to maximize investment efficiency. In contrast to conventional investment structures, these organizations possess enhanced capabilities in selecting financial instruments and can execute complex trading schemes, encompassing operations with borrowed resources, derivative contracts, and short-selling mechanisms. The primary objective of such funds lies in ensuring stable money appreciation regardless of trends, which particularly appeals to qualified investors and major funding institutions. These advanced investment vehicles typically require substantial initial capital commitments and primarily cater to sophisticated investors capable of analytics and inherent risk management.
Instruments
Futures
Binding agreements requiring the purchase or sale of assets at a set price. They're actively used to minimize investment risks associated with value spikes and protect assets.
Forwards
Individualized futures-like contracts but with less liquidity. These transactions are not conducted through exchanges and are generally used to reduce the currency risks for specific dates.
Options
It does not provide a liability like futures, but the right to buy or sell assets at a certain price. The flexibility of option hedging has made it popular in the field of investing, offering protection from potential losses while allowing action based on market conditions.
Swaps
Swaps enable cash flow exchange between counterparties with different financial terms. Swaps are often used to various risks – interest rate, currency. They can also be customized for specific needs.
Operational Framework
Stock market hedging typically involves futures and functions. Situation: a stockholder can open a short position in futures contracts during instability to compensate for possible losses.
Here's a simple example: an investor buys stocks expecting growth but decides to risk control after news of potential negative factors. They open a short futures position on the same stocks, ensuring protection against cost drops.
Risks and Nuances
There are drawbacks to this process. First, instruments can require significant costs, reducing potential profits. Second, incorrect market assessments can lead to unexpected losses. Finally, a complete strategy may limit income growth during favorable market movements.
Asset Protection in Cryptadium
In Cryptadium's crypto processing, hedging refers to a special option protecting incoming cryptocurrencies from rate fluctuations. How does it work? By enabling this option for all or selected coins, you ensure their automatic transfer to a hedge fund and conversion to stablecoins – coins pegged to the US dollar. They're stored in the foundation until reaching a configurable minimum limit, then transferred to your account balance. This way, all chosen coins remain secure.
Liliya Andrushevskaya,
expert of Cryptadium
