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Placing
odds in your favor
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Hedging is risk control. Hedging strategies reduce, but never increases market risks. If a trade or a position in the market does not reduce risk, it's not hedging, it's speculation. Money managers who truly hedge their positions should be able to present to clients the risk reduction in each position they take in a quantitative manner.
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In order to placing odds in your
favor, you must have strategies to profit from all market
directions: up, down, sideways etc. Further, in addition to
price movement, you must have strategies to profit from other
aspects of the market: volatility, time etc.
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Why does my broker tell me that derivatives are high risk?
Most stock
brokers/financial advisers especially those from big name firms
are mutual fund sales people. Their main job is to sell their
firmsˇ¦ mutual funds to ˇ§gather assetsˇ¨ for their firms. They
donˇ¦t have a clue about derivatives or derivatives markets.
Their firms donˇ¦t want you to know other aspects of the market.
Once they have control over your assets (in their mutual funds),
they can and will profit from your assets or positions in
derivatives markets (see media coverage on mutual fund scandal).
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