What is hedging?
Hedging is a way of avoiding losses due to fluctuations in prices of a commodity. Whether the commodity market or the stock market, securities or commodities are not guaranteed returns. This is because nobody knows that any security or commodity prices will fall or fall in the future. This increases the risk of those who use any commodity. For example, entrepreneurs using potatoes to make chips. Therefore, investors or businessmen use 'hedging' to reduce the risk. The possibility of loss from hedging significantly reduces.
How is gold hedging?
Suppose you are a jeweler. You have a jewelry order from a customer. This is to be done by the end of May. You buy Gold Bourse from the bank or bullion dealer to complete the order. After making jewelry it sells it to the customer by the end of May. But suppose that by the end of May gold prices fall from the current level. If you buy gold today you have to suffer loss. If you buy gold today you will have to suffer. To avoid losses from such a situation, when you buy gold from the spot market, at the same time you sell gold in the same quantity (quantity) on commodity derivatives exchanges.
Suppose that the price of gold is Rs 30,000 per 10 grams today. You buy one kg of gold for 30 lakh rupees and also sell the same futures contract of the same price. Now suppose that by the end of May, gold falls to Rs 29,000 per ten grams. If you did not hedge yourself, then you have to lose 1000 rupees per ten grams. Apart from this, the price of jewelry would also have been reduced.
If you have hedged, then the damage to the spot market in the Rs 1,000 will be compensated by the futures market (where you were sold). When you sell a kilogram of jewelry, you will buy as much gold as you have sold in the futures market. This way, if gold prices fall further then you will not be harmed.
Where do the companies hedge gold?
Gold is hedged on commodity exchanges such as banks dominated or on MCX. More recently, BSE and NSE have launched Gold derivatives. All stakeholders in the market believe that the participation of these exchanges will increase in the coming days.
Hedging is a way of avoiding losses due to fluctuations in prices of a commodity. Whether the commodity market or the stock market, securities or commodities are not guaranteed returns. This is because nobody knows that any security or commodity prices will fall or fall in the future. This increases the risk of those who use any commodity. For example, entrepreneurs using potatoes to make chips. Therefore, investors or businessmen use 'hedging' to reduce the risk. The possibility of loss from hedging significantly reduces.
How is gold hedging?
Suppose you are a jeweler. You have a jewelry order from a customer. This is to be done by the end of May. You buy Gold Bourse from the bank or bullion dealer to complete the order. After making jewelry it sells it to the customer by the end of May. But suppose that by the end of May gold prices fall from the current level. If you buy gold today you have to suffer loss. If you buy gold today you will have to suffer. To avoid losses from such a situation, when you buy gold from the spot market, at the same time you sell gold in the same quantity (quantity) on commodity derivatives exchanges.
Suppose that the price of gold is Rs 30,000 per 10 grams today. You buy one kg of gold for 30 lakh rupees and also sell the same futures contract of the same price. Now suppose that by the end of May, gold falls to Rs 29,000 per ten grams. If you did not hedge yourself, then you have to lose 1000 rupees per ten grams. Apart from this, the price of jewelry would also have been reduced.
If you have hedged, then the damage to the spot market in the Rs 1,000 will be compensated by the futures market (where you were sold). When you sell a kilogram of jewelry, you will buy as much gold as you have sold in the futures market. This way, if gold prices fall further then you will not be harmed.
Where do the companies hedge gold?
Gold is hedged on commodity exchanges such as banks dominated or on MCX. More recently, BSE and NSE have launched Gold derivatives. All stakeholders in the market believe that the participation of these exchanges will increase in the coming days.
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