Hedging using futures.edited.docx - Running head HEDGING USING FUTURES Hedging using futures Name institution 1 HEDGING USING FUTURES 2 Question 1

Hedging using futures.edited.docx - Running head HEDGING...

This preview shows page 1 - 3 out of 7 pages.

Running head: HEDGING USING FUTURES 1 Hedging using futures Name institution
Image of page 1

Subscribe to view the full document.

HEDGING USING FUTURES 2 Question 1: Advantages and disadvantages of hedging using futures Hedging using futures has both its merits and demerits. The futures are deemed to be suitable for short-term risks and minimizing strategy for investors and short-term traders. Although futures are used as a hedging tool to lock profits and enable the survival of traders during hard market periods, it has some advantages and disadvantages which need to be considered. The following are some of the advantages and disadvantages of hedging using futures. Advantages Hedging using futures is liquid and easily traded in the central market. In that case, futures can be rapidly purchased and sold in large markets, as it will increase liquidity levels. This can be possible due to the fact that future contrasts are easily traded in central markets where there exist more market participants (Kuzmin, 2019). Besides, having many market participants increase the liquidity level because many participants will enter and exit positions such as long and short making it easy to buy and sell futures. Also, hedging using futures will include leverage. In that case, depositing a value of the item on trade significantly magnify the gains or losses (Kuzmin, 2019). The reason is how the margin system can allow the trader to undertake a significant position through making a small deposit value, if not the initial margin.
Image of page 2
Image of page 3
  • Spring '14
  • Addero

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask 0 bonus questions You can ask 0 questions (0 expire soon) You can ask 0 questions (will expire )
Answers in as fast as 15 minutes