hedging & speculation

Hedging and Speculation
Name
Institution of Affiliation
Hedging and speculating
Explain the Difference between “Hedging” And “Speculating” by Explaining why someone who Wishes to “Hedge” Against Inflation Might Choose to Purchase Gold
Television commercials talking about purchasing gold are common. People wonder whether the whole thing is a scam or a genuine investment. Regardless of the venture option someone chooses, according to the book, “it is substantial to distinguish between trading for profit (speculating) and locking in a position (hedging)” (Block, Hurt, & Danielse, 2017, p. 668).
Hedging is a strategy that eliminates the volatile nature of the value of an asset. It takes an offsetting stand in a derived value. The aim is to balance the achievements and losses that characterize the underlying asset. Hedges help in reducing the risk by adopting an opposing position in the market area where they are hedging. On the other hand, speculation targets gains that can be realized from betting on the price changes based on the direction the asset moves.
During periods of inflation, goods become expensive and are sold above economically permissible rates. During these times, equity and debt are not categorized under good investment options. Investors fear purchasing assets at extraordinary rates because during these times, they are underperforming. Investors buy gold to hedge against higher inflation rates because historically, it performs well e…