HEDGING PRICE RISKS ON THE STOCK MARKET

Abstract

The article is devoted to the study of the impact of hedging on price risk management. The peculiarity of hedging is to provide insurance against negative expectations and the consequences of price risks through the use of futures and options on the stock market. It is proved that the main function of hedging is to provide hedgers with adequate insurance coverage in case of negative economic consequences caused by individual risks.

The advantages and disadvantages of hedging are highlighted. Advantages of hedging are increasing financial stability; reducing uncertainty; minimizing price risks; reducing the risk of bankruptcy, etc. Disadvantages of hedging are the risk of capital loss under exchange restrictions and situations that require urgent decisions; complication of the transaction structure; reduction of potential profitability due to hedging costs; increased involvement in market analysis, allocation of additional time for trading; additional costs for paying Exchange Commissions, etc.

The approach to classification of hedging by a number of characteristics has been improved by the type of financial instrument used for hedging; by the terms of the contract used for hedging; by the volume of risks to be insured; by the type of asset used in the hedging process; by the type of counterparty.

The reasons that influence the decision to hedge price risks in the exchange market are established. It is proved that hedging is not designed to completely eliminate risk, but to achieve the best ratio between the advantages of using this instrument and the costs of implementing it