Hedge Trading

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The principal trading philosophy we teach here is hedge trading. It isn’t always easy to wrap your mind around that sort of thing but the purpose of hedge trading is to try to make trading results more predictable (reduce risk / variances) while maintaining the same high level of returns. That’s a nice way of saying that this philosophy wants to do what efficient markets theory tells us is impossible: to get a better return on investments with less risk than the market tells us we can acheive.

Is Hedge Trading Effective?

One has to ask if all the Wharton School MBAs and University of Chicago theorists like the great Eugene Fama and his disciples tell you it is not possible to make exceptional returns in efficient markets then hedge trading won’t work, right? If that is the case then why do the wealthiest investors in the world pay 2 and 20 (2% fee on investment plus 20% of gains made) to hedge trading funds and gurus? If hedge trading funds stay in business and grow doesn’t it stand to reason then that the philosophy must be working for at least *some* of them?

The Hedge Trading Scam

If you’ve read any financial newspaper or journal or magazine in the last several years you will have come across headlines regarding hedge trading scams. You should be familiar with the story of Bernard Madoff, if not the name of Robert Allen Stanford. These men claimed to have a “special trading system” that allowed them to beat the market no matter how large a scale they operated on. It took years and billions in dollars of losses/fraud before the scams (a basic ponzi scheme in each case) was revealed.

Listen: Nobody can operate on a long term basis getting extraordinary returns on investment on an infinite scale. Exact returns are simply unpredictable on long time frames. On the other hand, short term and small scale returns can at least be narrowed, if not predicted, with simple unelaborate hedge trading.

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Following in the Footsteps of Graham and Buffett

It is this style of hedge trading philosophy we teach here. It has long been known that the best practice of investing (as best we know how) is to compare two or more assets which the market tells us are equal, and then discern differences between the two in order to make the best choice. Warren Buffett or his mentor, Benjamin Graham would tell you that. Hedge trading operates on a similar philosophy: it involves trading assets that ARE effectively equal in as many ways as possible but different in very specific select ways (such as price or payout structure) to create a controlled SET of possible outcomes from the COMBINED assets traded/purchased. One way to see the most elementary example of hedge trading) involves binary options. The simplicity and elegance makes binary options the ultimate teaching tool for this style of trading, and it is for that reason we strongly suggest that if you have an interest in hedge trading that you should start by taking our free intro binary options trading course. You’ll learn the basics with real-life actual examples and basic strategies you can duplicate in your own binary options trading account.

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