How to Hedge Your Shares Portfolio
Bitcoin
How Economic Affect Shares Portfolio?
A portfolio of equities is exposed to weakness in economic growth – when growth falls, employment declines and consumer and business spending drops. Equities are a means to benefit from rising corporate earnings, which are driven by consumers and businesses spending money. If earnings growth is expected to be negative, then investors tend to sell shares, driving down prices and causing bear markets (ie prolonged falls for share prices). A portfolio of shares will thus fall in value during periods of economic weakness.
Ways to Hedge Your Stock Portfolio
01
Hedging By Going Short On Stocks
In bull markets, investors should seek out the strongest performers. By contrast, bear markets, where stocks fall over time, should see traders looking to short the weakest performers. By going short on stocks, traders can help reduce the losses on the ‘long’ part of their portfolio.
02
Hedging with ETFs
Exchange Traded Funds (ETFs) allow investors to hedge their portfolio without using derivatives or other complex financial products. The low cost and easy accessibility of ETFs make them a more attractive prospect for some investors.
03
Hedging With Indices
Just as traders using CFDs can use short positions on individual equities to hedge their main portfolio, they can employ short positions on the indices themselves, in a similar fashion to the use of short ETFs.
Hedging
Hedging Shares Summed Up
Hedging can be a useful means of reducing losses on an equity portfolio. It is not a means of eliminating losses entirely, but as the above example shows can help to cut back the losses. It is important to remember that periods of falling prices are usually temporary, and that bull markets tend to last longer than bear ones, so usually it is more beneficial to be long than short.