In a market set-up, a future is regarded as a deal one makes to buy a product with a specified price during a different time. Futures may be used as a disincentive to counter the reduction of profits in the market or alternatively be utilized by an investor. Alternative, hedgeis an item that functions in determining a future. The main role of the hedge is to mitigate risk through diversification or scattering the investments.
Futures possess the propensity to be utilized as exploratory investments. By frequently engaging futures as tentative investments, individuals are guaranteed of making exorbitant profits.
Hedging entails taking a specified stand pertaining a derivative so as to balance between the profits and loses you make depending on the available assets. To succeed, hedgers take a distinct stand in a business setting different from what they intend to hedge. The most important idea of hedging is trying to cause one factor to verify the collapse of the other. For instance, when a company’s main raw materials are gold, it teds to cancel the worries of future price depreciation by purchasing a long contractual future such that even if there is an increase in the prices in the long run, the futures contract will stabilize the prices and enable it to survive in the market (Kumar, 2012).
Speculators make decisions depending on the opportunities and strengths in the market. For instance, when a product in the market is overpriced, a speculator may hold the product for a while to wait until the stock reduces in the market then introduces the product again and sells it at a higher price thus maximizing on the profits. Hedgers are in this regard prone to risks, unlike speculators who enjoy taking risks (Zweifel&Eisen, 2011).
In religion and Christianity, individuals can be likened to hedgers who make the necessary precautions in ensuring success in their spiritual life. It is also advisable that one maximizes his/her opportunities and tests God to see what will come of his/her commitment and prayer.
Kumar, S. S. S. (2012). Financial derivatives. New Delhi: PHI Learning Private Limited.
Zweifel, P., & Eisen, R. (2011).Insurance Economics. Berlin: Springer Berlin.