Money is one big thing that matters a lot. How to earn it is a big quest. How to use it is a mystery. How to make it work for you is a great deal.
Lets see how in today’s world one makes this great deal.
Financially there are many norms which facilitates good returns but in all liquidity is always a great matter of concern.
Hence many people and institutions prefer stock markets for trading purpose and to generate some good smart revenue.
The way they trade and the way they generate return is not a rocket science, its just that every one uses different techniques to facilitate their needs.
Hedging, A hedge is an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security.
The most common way of hedging in the investment world is through derivatives.Derivatives are securities that
move in correspondence to one or more underlying assets. They include options, swaps, futures and forward
contracts. The underlying assets can be stocks, bonds, commodities, currencies, indices or interest rates.
Derivatives can be effective hedges against their underlying assets, since the relationship between the two is
more or less clearly defined. It’s possible to use derivatives to set up a trading strategy in which a loss for
one investment is mitigated or offset by a gain in a comparable derivative.
Many Multi-National Hedge-Funds use this technique to make billions of dollars.
In brief, hedging can be understood as a great tool for risk management, where it can be of great use if market is moving against your sentiments. Hedging can ultimately generate some decent profit if done nicely.
Arbitrage, is the simultaneous purchase and sale of an asset to profit from an imbalance in the price. It is a trade that profits by exploiting the price differences of identical or similar financial instruments on different markets or in different forms. Arbitrage exists as a result of market inefficiencies and would therefore not exist if all markets were perfectly efficient.
Arbitrage occurs when a security is purchased in one market and simultaneously sold in another market at a higher price, thus considered to be risk-free profit for the trader.
As a simple example of arbitrage, consider the following. The stock of Company X is trading at 100 on the NSE
while, at the same moment, it is trading for 101 on the BSE. A trader can buy the stock on the NSE and
immediately sell the same shares on the BSE, earning a profit of 1 Rupee per share. The trader could continue to
exploit this arbitrage until the specialists on the NSE run out of inventory of Company X’s stock, or until the
specialists on the NSE or BSE adjust their prices to wipe out the opportunity.
A System which can facilitate a margin of profit with respect of different exchanges, is one unique
and attractive platform.
Speculation, is the act of conducting a financial transaction that has substantial risk of losing all value but with the expectation of a significant gain. With speculation, the risk of loss is more than
offset by the possibility of a huge gain. Otherwise, there would be very little motivation to speculate.
It may sometimes be difficult to distinguish between speculation and investment, and whether an
activity qualifies as speculative or investing can depend on a number of factors, including the nature
of the asset, the expected duration of the holding period, and the amount of leverage.
The basic meaning of speculation is the forming of a theory or conjecture without firm evidence.
Well True that. Its like betting in Mumbai Indians Vs KKR match, depending upon our favourites / performance.
Market is place where facts are always short. One with few facts and some optimism is definitely speculating the market.
Market is full of risk. One doing risk management is hedging in market.
Market is full off fluctuations. One taking advantage of market inefficiencies is an arbitrage.