What is hedging?

Hedging means that one investment deliberately reduces the risk of another investment. This is a way to reduce business risks while still making profits from investment. General hedging is to conduct two transactions at the same time, both related to the market, in the opposite direction, with the same amount and breakeven.

Market correlation refers to the identity of market supply and demand that affects the prices of two commodities. If the relationship between supply and demand changes, it will affect the prices of two commodities at the same time, and the prices will change in the same direction. The opposite direction means that the buying and selling directions of two transactions are opposite, so that no matter which direction the price changes, there is always a profit and a loss.

Hedging is the most common in the foreign exchange market, focusing on avoiding the risk of one-way trading. Hedge. The so-called single-line trading means buying short positions (or short positions) when you are optimistic about a certain currency, and selling short positions (short positions) when you are bearish on a certain currency. If the judgment is correct, the profit will naturally be more; But if the judgment is wrong, the loss will be very large.

The so-called hedging is to buy a foreign currency at the same time and short it. Besides, we should also sell another currency, that is, short selling. In theory, shorting a currency and shorting a currency should be the same as the silver code, which is the real hedging, otherwise the hedging function cannot be realized if the two sides are different in size.

Extended data

Hedging example

1 and1in the 1990s, when the Iraq war in the Middle East ended, the United States became the victorious country, and the price of the US dollar rose steadily, with a strong trend. It rose against all foreign exchange, and only the Japanese yen remained a strong currency. At that time, shortly after the fall of the Berlin Wall, Germany had just been unified, and the economic differences in East Germany dragged down Germany, and the economy had hidden worries. The political situation in the Soviet Union was unstable, and Gorbachev's position was shaken.

At that time, the British economy was also very poor, and interest rates were cut constantly. The Conservative Party was challenged by the Labour Party, so the pound was also weak. After the war, the attraction of Swiss franc as a war refuge declined and it became a weak currency.

2. During the period of1997, Soros's Quantum Fund sold a lot of Thai baht and bought other currencies. Thailand's stock market fell, and the Thai government could no longer maintain the linked exchange rate, resulting in heavy economic losses. And the fund is very profitable.

In addition to Thailand, Hong Kong and other countries and regions that maintain currency prices with the linked exchange rate are challenged by hedge funds. The Hong Kong government raised interest rates sharply, reaching 300% in overnight rate, and even used HK$ 654.38+020 billion in foreign exchange reserves to buy a large number of Hong Kong stocks. Finally repel speculators.

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