Whether you’re trading at home in Phoenix, AZ, or on the floor on the Tokyo Stock Exchange, there’s one thing that doesn’t change; there are no guarantees in trading. Trading in stocks, commodities or other assets can be exhilarating, fast-paced, and one day can mean the difference between a huge fortune and a devastating loss.
It’s one of the reasons why trader here in Phoenix, AZ and other parts of the world are always on the lookout for tips and better techniques in trading. As long as you’re making more profit than losses, you’re making progress. One of the ways that traders can add a measure of safety to their activities is through the act of “hedging.” But what is this, and how does it help?
A Safety Buffer
“Hedging” refers to a general technique of making investments that can offset possible losses in the future, helping to mitigate just how harmful they can be. It’s not a way to increase your chances of making a profit, so much as a way to insulate yourself from losses so that they don’t do as much damage as they could potentially inflict on your trading. In that sense, hedging is more a way to increase your financial safety, rather than boost your chances of a big success.
Selling To Protect Yourself
One of the easiest ways to hedge in trading is to be prepared to make sales on trading that you already have an interest in, rather than “bet the farm,” or “go all in” with a single financial activity. For example, if you invest in a company that mines gold, you should also think about investing in gold futures. This way, if you experience any negative movement on the gold mine investment, you’re making a profit on the sale of gold futures to help minimize the losses.
Diversification In Futures
Futures started as a trading concept in the commodities market to help provide some predictability and stability to commodities trading by “locking in” the price of commodities like wheat or aluminum for a future date. This was much more efficient than having to send someone to a farmer to evaluate the quality of the wheat, then settle on a price for the crop, then have to do this again for another farmer.
So today’s traders can now benefit from futures trading in a variety of different markets, not just commodities. And this how people can hedge to protect themselves and added a little buffer for trading. Buying futures in your areas of interest, especially when prices are lower, helps you to control and lock in those prices so that you can buy even more at a future date, and, when the time comes, sell to make a profit. And it means that even if your actual investment goes sour, and goes down in price, you still reap some benefits
Trading in Phoenix, AZ involves a lot of learning, timing, and a little luck. But the more you understand what your trading options are, and what the consequences may be, the more successfully you can trade and gain consistently.