Traders are generally risk-averse. To minimise the risk, the trades are often covered with additional trades in order to hedge the risk. While hedging, traders need to do a risk-reward tradeoff. The hedge reduces the risks, but it also reduces the potential gains. Traders often try to perform a perfect hedge in case an arbitrage opportunity shows up. With a perfect hedge, the hedge is 100% inversely correlated to the asset. This course will cover two types of hedging:
- Option hedging
Option traders are exposed to different kinds of risk. These risks will be identified. Examples will be given for hedging using options. - ETF hedging
ETF traders also hedge their trades. Basic ETFs are pretty straightforward and it is easy to explain how ETF traders make use of arbitrage opportunities.
Table of Contents
Start Your Interview Preparations!
Already have an account? Log in!