what are the risks of futures hedging?
342002
That your hedge will not be effective is the main one - that it will fall outside your country's tax rules is another.
609545
Most people lose money trading options.  See this link.
258045
There are probably hundreds of "How To Trade Futures" publications available from the internet, commodity exchanges, various brokerage firms, and private authors. This is a very small sample to get you started. \n\n_________________________________________\n\nCME's Instant Web Lessons - the Chicago Mercantile Exchange has a nice free online tutorial for learning about trading; a good starting point. \n\nCBOT Futures & Options Trading Strategies - Chicago Board of Trade's tutorial for trading futures and options, using their Dow Jones contract for examples; they have basic, intermediate, and advanced strategies. \n\nF.I.I.'s Intro to Futures & Options - Futures Industry Institute's helpful free tutorial. \n\nN.F.A.'s "Understanding Opportunities & Risks in Futures Trading" - official booklet from the National Futures Assn. official booklet from the National Futures Assn. \n\nBasics of Futures Trading - source is Pacific Rim. \n\nCommodity Futures Trading for Beginners - from Bruce Babcock. \n\nIntroduction to Futures & Commodity Trading - provided by Equity Analytics. \n\nLearn The Basics of Futures & Options Trading - courtesy of Joey Kendrick. \n\n"Futures 101" - good information for beginners from Orion Futures. \n\n"A Brief Introduction to Hedging with Futures & Options" - a well-written article by Mae Siffin of the OFOR at the U. of IL. \n\nTypes of Commodity Orders - also from Orion Futures.\n\nALL THE SHORT CUTS ARE PROVIDED HEREBELOW FOR READY REFERENCE.
765519
The main advantage of derivative as a tool in managing risks is that the cost of getting in to a derivative is really low compare to the size of amount ($$) you are providing hedge to.  Meaing, when enter into an equity option,  one option can hedge the risk of 100 shares, or let's say one crude oil future can hedge the risk of thousands of barrel of crude oil.  So if the derviative does not work your way,  you only loss the amount of money you put in the derivatives.\n\nThe Main Disadvantage is if the underlaying securities of the derivative is going in your favor, you don't get to see the benefit of that since the loss in the derivative you got into will simply net out the gain.
171946
You have riskless securities such as tresury bills. they have a fixed rate of return after a certain time. it is known and fixed.\n\nhowever, if you take stocks for instance, the rate of return will be higher, as there is a risk involved. in the rate of return was not higher, you would never go for a riskier option and stick to the garanteed return.\n\nthe amount of extra return on a risky secutiy is the investors 'premium on risk'. the riskier the investment, the higher the returns
1013678
Default risk is the risk that a debtor will "default" on the agreement by missing a payment.\n\nPrepayment risk is the risk that the debtor will pay back the loan in full before the term of the agreement is up.  This is often mitigated by a prepayment penalty written into the contract by the creditor.
846497
If you mean calculated risk, Yes. If you mean betting long shots or where odds are against you then NO. Don't gamble at all.\n\nWe all take risks every day. being smart and managing risk is a very important thing in almost all walks of life. Risk calculations involve both probability and consequences.
1109544
Are we talking about stocks here? Oil, bonds, what? There are options on everything, including futures options.\n\nYes, these answers are way off. You didn't ask for the definition of a Put. \n\nThe seller could be anyone, yes, but generally it is a broker/dealer or floor trader or a hedger against stock ownership, like an institution or fund.\n\nOptions were designed as a hedging tool, so if used correctly, the seller would be someone who owns the underlying. Speculators selling options is a very risky business, so generally, he would be a professional with deep pockets. The less knowledgeable people get weeded out in a hurry.\n\nThe seller of the option hopes it will expire worthless. This is how he makes his money. Since 85% of all options expire worthless, his odds are pretty good, but the risk is still open-ended and enormous; not for the feint at heart.
170590
Stock market!  You can invest in high risk or low risk stocks, it is up to you.  If you decide to do day trading or trade penny stocks, that is where the highest risk lies, but also the best profit can be made!
209061
I would use derivatives as an insurance policy to have a good night sleep, because derivatives can limit your potential loss, although it does not come without a price (like insurance premium). For example, you invest in Google shares, but you're afraid that the stock price might suddenly go down. To hedge this risk, you buy a put option, which will give you the right to sell the stock at a predetermined price (so called strike price). So, you will limit the loss to a fixed %. The price you have to pay for it is the price of the put option. So, even if you buy "at the money" (strike=current stock price ) or "in the money" (strike > current price) put, you still can suffer a potential loss on your total investment, because you paid for the put. But you will know for sure the minimum return you will get. A combination of a put and a call, or shorting some of the derivatives will allow you to limit both upside and downside. A guaranteed no-loss investment will a have very limited upside potential. Why not to buy Government securities instead?\n\nIn your example you are asking for 45% annual return. Portfolio with such expected return will carry a lot of risk.
1103445
If you have shares that you bought in the cash market, you can sell the shares ( assuming you are long in cash market) in futures market, that is called hedging. You do that essentially to protect ur downside risk in the cash market. A hedge in the derivatives market is created by assuming an offsetting position.
195152
All quick money schemes include risk.  The higher the potential profit the higher the risk.
1134715
Valuation of financial derivatives (options, futures, forwards, etc)\nReal hard math, but real good money.
16959
A day when three types of derivative contract (futures or options) on the same underlying asset are exercised. Since trading in underlying intensifies prior to exercise of derivative, there's a lot of trade in this asset, which increases volatility, which means even more trade, etc.\n\nThe reason is that value of derivative is directly linked to price of underlying at exercise date, so large player try to influence the price via buying (price up) or selling (price down) of underlying.
475784
Risks of Investing in Bonds\nAll investments offer a balance between risk and potential return. The risk is the chance that you will lose some or all the money you invest. The return is the money you stand to make on the investment.\n\nThe balance between risk and return varies by the type of investment, the entity that issues it, the state of the economy and the cycle of the securities markets. As a general rule, to earn the higher returns, you have to take greater risk. Conversely, the least risky investments also have the lowest returns.\n\nThe bond market is no exception to this rule. Bonds in general are considered less risky than stocks for several reasons:\n\nBonds carry the promise of their issuer to return the face value of the security to the holder at maturity; stocks have no such promise from their issuer. \nMost bonds pay investors a fixed rate of interest income that is also backed by a promise from the issuer. Stocks sometimes pay dividends, but their issuer has no obligation to make these payments to shareholders. \nHistorically the bond market has been less vulnerable to price swings or volatility than the stock market. \nThe average returns from bond investments have also been historically lower, if more stable, than average stock market returns.\n\nHigher Risks=Higher Yields\nA specific bond’s risk level is reflected in its yield, another name for return on a bond investment. “Current” yield is a function of the bond’s:\n\nCoupon rate: the annual interest rate the issuer promises to pay the investor, stated as a percentage of the bond’s face value or “par,” which is the amount the investor can expect to have returned on the bond’s maturity date. \nCurrent price, which may be a premium (more than) or discount (less than) in relation to the bond’s face or par value. \nYield-to-maturity reflects the relationship between the total coupon interest payments remaining between now and maturity, and the difference between today’s market value (price) and par value. Yield-to-call is the same calculation based on the total coupon interest payments remaining between now and the first call date (rather than the maturity date) as well as the difference between today’s market value (price) and the call price.\n\nThe higher the risk in a given bond, the higher its yield needs to be to compensate the investor for taking the risk. When the market perceives the yield on a bond to be too low, its price will fall to bring the yield in line with market expectations or prevailing interest rates.\n\nIt’s All Relative to “Riskless” Treasury Yields\nBonds issued by the U.S. Treasury are backed by the full faith and credit of the U.S. government and therefore considered to have no credit risk. The market for U.S. Treasury securities is also the most liquid in the world, meaning there are always investors willing to buy. U.S. Treasury yields will almost always be lower than other bonds with comparable maturities because they have the fewest risks.\n\nRelative yields—which may be discussed in terms of “spread” or difference in yield between a given bond and a “riskless” U.S. Treasury security with comparable maturity—vary with the type of bond, maturity date, the issuer and the economic cycle.\n\nCallable bonds are riskier than non-callable bonds, for example, and therefore offer a higher yield, particularly if the call date is soon and interest rates have declined since the bond was issued, making it more likely to be called.\n\nShort-term bonds with maturities of three years or less will usually have lower yields than long-term bonds with maturities of 10 years or more, which are more susceptible to interest rate risk. All bonds have more risk when interest rates are rising, but those with the lowest coupons stand to lose the most value.\n\nUnderstand the Risks Before You Invest\nBonds have a role to play in virtually every investor’s portfolio (See the article on Asset Allocation for more inf
367207
There's a website that determines risk of a portfolio.  Its free, you just have to register.\n\nwww.riskgrades.com
525100
Like all commodities, pork bellies are extremely volatile and can be dangerous if you don't know what you're doing.  The fact that you have to ask this question makes me extremely skeptical of your level of experience and hence, suitability.  \n\nIf you absolutely NEED commodities exposure, limit it ro 5-10% of your portfolio, and buy it through the DWS Scudder Commodity Securities fund (SKNRX), which contains exposure to all the commodities on the futures exchange, and does it in a 50% less volatile way due to the unique commodity/stock 50-50 makeup of the fund's portfolio, unlike either the Pimco or Oppenheimer funds.\n\nHope this helps, and be careful!\n--J.