Friday, August 20, 2010

Investment: Hedging Your Risks

In my previous blog entry, I talked about going defensive in terms of investing in stocks, then it was reported in the media that Hindenburg Omen, a most feared signal for an imminent stock market crash,  has arrived.

When the stock market crashes, even the bluest of the blue chip stocks would still fall in tandem with the rest of the market.  Investors may see the value of their portfolio go down so much that heart pain is too light a phrase to describe it.  Under such circumstances, what can you do to protect yourself?

There are actually many 'insurance' schemes that you can adopt to protect the value of your portfolio.  Some financial instruments for this purposes include options, futures, warrants, CFDs, etc.  There are a wide range of instruments available to you.  However, such instruments are mostly derivatives, and carries much higher risk if you don't know what you are doing.

Will a stock market crash will follow after the Hindenburg Omen has arrived?  Nobody will know.  Even if somebody knows, he/she won't tell.  The best way is still for YOURSELF to device a hedging scheme to protect YOUR portfolio.

Happy investing!

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