Dear All,
Pls explain me with an example of Pledging and Hedging. In which asset class we can do Pledging and Hedging and what are the benefits
Thank you,
Pledging is similar to gold loan we take in banks. You pledge your gold (shares) in bank(broker) and get money.
Ex:Lets say you have 100 shares of company ‘X’ in your demat and you want some money to trade in F&O then you can pledge shares in your demat to your broker and get money.
Hedging is risk management strategy used to reduce your probability of loss from price movements.
Ex: you bought nifty futures at 7510. Now there is a chance that nifty may go down and bring you say 10% of loss.To reduce your risk of loss you either sell nifty call options or buy nifty puts. Now your risk of loss is reduced to say 5%. This process is called hedging.
To understand more about hedging refer to zerodha varsity link:- http://zerodha.com/varsity/chapter/hedging-futures/
2 Likes