PRN: How Hedging Can Diversify Your Spread Betting Risk - City Index
How Hedging Can Diversify Your Spread Betting Risk - City Index
LONDON, July 6, 2011 /PRNewswire/ --
In financial spread betting, it can be dangerous to put all your eggs in one basket. Pick the right trade and you may reap rewards. Pick the wrong trade, however, and you could lose more than your initial deposit. Joshua Raymond of spread betting provider City Index (http://www.cityindex.co.uk/) explains the benefit of diversifying your risk through hedging.
"It's the classic ice cream stand example," states spread betting expert Mr. Raymond. "If you invest into an ice cream van, then the van is likely to make most money when the sun is shining. However, should it rain, revenues are likely to be down as consumers are unlikely to want to buy ice creams when they are drenched in rain.
"A typical hedge against this would be to invest in an umbrella company. That way, when it rains, any losses made in the ice cream van are likely to be offset by the umbrella manufacturer.
"The same can be said for trading the financial markets. One example is the price of the US dollar and dollar denominated commodities. There has been a fairy strong inverse correlation between the price of Crude oil, copper and other dollar-denominated commodities to the price of the US dollar index. This is because the more expensive the dollar is, the more costly it becomes for non holders of dollars to buy these commodities, and vice versa. Therefore, should you have a large long position in, say, Crude oil, it can be hedged effectively by going long on US dollars, as any fall in crude is likely to be picked up by dollar gains."
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About City Index:
Today more and more individual traders are discovering the benefits of derivatives, and many of them are discovering them through a City Index trading platform.
As a group, we transact in excess of 1.5 million trades every month in over 50 countries. We provide access to a wide range of instruments including margined foreign exchange, contracts for difference (CFDs) and, in the UK, financial spread betting.
We constantly look to improve the performance of our platforms and expand the range of services we provide. The result is that our customers benefit from innovative trading tools with transparent pricing, competitive spreads, mobile trading and a high standard of customer support. Visit http://www.cityindex.co.uk/ for more information.
Contact: Joshua Raymond, City Index, +44(0)20-7107-7002, joshua.raymond[at]cityindex.co.uk