Most investments are full of market risks. Economic downturns, for example, are normal market corrections that happen often after a specific timeframe. As an investor, portfolio hedging is a good strategy to help mitigate the effects of negative market dynamics such as inflation. The question will always be how can you effectively build a hedge? One of the most favorable and direct hedging strategies would be to invest in an investment firm that can offset 100 percent of losses in another investment during hard times. However, such firms are rare, in reality. Nonetheless, there are specific hedging you can use to help mitigate portfolio risk, including short selling, buying put options, using inverse ETFs, and selling futures contracts. Whichever you choose, you can use a variety of hedging strategies to minimize the risks of investing.
How to hedge stocks
As an investor, you may want to protect your stock investments from adverse market dynamics, such as an economic downturn. As earlier mentioned, there are many ways to hedge stocks. In this case, you hedge against investment risk by offsetting the risk of any adverse price movements. In other words, you will hedge one investment by making trade in another. For instance, you buy shares of Company XC, which you believe will grow in the long term. However, you worry that in the short term the company will not do well and you’re likely to incur losses. To protect yourself, you can buy a put option on the company, which will give you the right to sell your XC shares at a specific price (strike price). This strategy will offset your losses if the company’s share price falls below the strike price.
How to hedge your portfolio
You may want to hedge your entire portfolio, which requires you to use the available financial instruments such as options and futures. These instruments can help you develop trading strategies where a loss in one investment is offset by a gain in a specific derivative. Diversification is one of the most popular ways to hedge a portfolio over the long term. When you hold uncorrelated assets, you reduce the overall volatility of your investment. In other words, a diversified portfolio will have a minimized average loss.
The emerging alternatives with crypto assets
Short selling, buying put options, and selling futures contracts are widely used as stock hedging techniques. However, they are quite complicated and regular investors may not access them easily due to expensive entry requirements.
The alternative is to check the new market commodities, such as cryptocurrencies. Buying and holding cryptocurrencies has become quite popular because they are inflation-resistant like gold. Firms such as Helios Fund offer up to 9x your investment in just 3 years when you deposit your Bitcoin (BTC) with them. One of the greatest challenges that crypto investors have to deal with today is volatility. However, Helios Fund’s financial instruments ensure investors are not exposed to crypto market volatility. Instead of looking at how to hedge funds short stocks or how to get into hedge funds, you may consider cryptocurrency investment as an option. It gets even much better when the firm does not put you through the difficult process of identifying which cryptocurrency to buy, and instead, gives you the peace of mind to simply invest and wait for the maturity of your investment time.