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Hedging Means: Definition, Example, Hedging with Options, Delta Hedging - Moneyfirstliv

As our lives are uncertain, in the same way, markets and stocks are uncertain, they do not always move straight in one direction. Due to this uncertainty, sometime trader or investor become fearful if the price moves against their direction. So to avoid fear and loss while trading, there is one technique called ' Hedging '.

Hedging

(safety against fear and losses)

To understand this technique/topic, let's take some simple examples like if anyone buys a new bike, then to avoid unnecessary costs while any accident, he/she buys insurance for his/her bike by paying some upfront premium (money) to the insurance company for one year, which provides him protection to his bike and his life with covering third party claim also. 

Let's take one more example if anyone buys a new car, then he will buy insurance to protect himself and his car from accidental cost and to protect himself from third party claim.

So from the above examples, we can conclude that he is simply hedging his fear/risk/losses with insurance.

Hedging in the stock market is protecting your current/existing position from upcoming losses if the script/stock starts to move against your existing positions.

Hedging video link in your favorite Hindi/English language: https://youtu.be/q3Iq-hhpwxE

Types of Hedging/ Hedging Instruments/ Hedging Techniques 

To hedge cash positions, it is important to buy as per the lot size of future&options which vary from stock to stock. Now , You will ask Why?. Say for example if the lot size of options if a stock XYZ is 200 qty. per lot and if you only buy 100 stock of XYZ.

Now, if You put to hedge your 100 shares, then your put qty. will be higher than stock bought, as you have only bought 100 share but the lot size is 200 qty. per lot.


Most of the retail investors want to hedge their cash positions, so considering cash segment positions, we can say there are two types of hedging:

1.) Hedging with future:

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