The arbitrage strategy is very simple yet very clever. If the tourism industry where the hotel operates is impacted by a negative event, the other investments wonвЂ™t be affected because they are not related. Simply put, it is investing in a variety of assets that are not related to each other so that if one of these declines, the others may rise.ДЇor example, a businessman buys stocks from a hotel, a private hospital, and a chain of malls. Diversification is when an investor puts his finances into investments that donвЂ™t move in a uniform direction. The adage that goes вЂњdonвЂ™t put all your eggs in one basketвЂќ never gets old, and it actually makes sense even in finance. Below are some of the most common hedging strategies that investors should consider: 1.

Investors are encouraged to use not just one strategy, but different ones for the best results. There are various hedging strategies, and each one is unique. This is considered one of the most effective hedging strategies. That profit would offset at least part of his loss from buying the stock. In this case, a put option would enable the investor to make a profit from the stockвЂ™s decline in price. An option is an agreement that lets the investor buy or sell a stock at an agreed price within a specific period of time. Such incidents can be mitigated if the investor uses an option to ensure that the impact of such a negative event will be balanced off. However, on the contrary, the price plummets and leaves the investor with a loss. Say, for instance, an investor buys stocks of a company hoping that the price for such stocks will rise. A common form of hedging is a derivative or a contract whose value is measured by an underlying asset. Hedging is the balance that supports any type of investment. In the event of a car accident, the insurance policy will shoulder at least part of the repair costs.

One clear example of this is getting car insurance. Hedging is recognizing the dangers that come with every investment and choosing to be protected from any untoward event that can impact oneвЂ™s finances. Rather, in the event that happens, the losses will be mitigated by gains in another investment. However, hedging doesnвЂ™t necessarily mean that the investments wonвЂ™t lose value at all. As an investment, it protects an individualвЂ™s finances from being exposed to a risky situation that may lead to loss of value.

Hedging is a financial strategy that should be understood and used by investors because of the advantages it offers.

Hedge definition