What is hedging and how helpful as insurence against future trading?

Question

From where i can learn hedging in future trading

hi pls tell me that how can i limit my losses in future tradind using option trading..pls give ans in detai if i have fut -nifty-4500 position than how option help me if nifty goes down to 4300

Answer 1

Forex trading-http://tradingsforex.info/

Answer 2

This is quite involved . You would normally hedge index options with index futures. The future always moves point for point with the index. The index options don't. Their movement depends on several factors; strike, time value, interest rates and volatility. This can be calculated using various formulae and can be checked against the actual movement of your positions (regression). You don't hedge unless necessary as the hedging will also hedge out your potential profit. You take your index option position and if it starts going wrong you need to hedge with the future so that you gain the same amount on the hedge as you lose on your options (or at least know the correlation). The volatility of your options will vary as time goes on and you therefore need to keep an eye on your hedge. Due to the time value eroding on your options you may also become over-hedged. The other way is to open your options and then effect a stop order on the future as insurance. Be careful and make sure you know what you are doing. See http://www.shareworld.co.uk