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The Difference Between Hedging and Speculating
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The Difference Between 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.
Explain why someone who wishes to “speculate” might also choose to purchase gold.
Relate the motivations of “hedging” and “speculating” to the topic of Christianity.
Makings investment decisions is very complex. Individuals may make serious losses
if they fail to make wise investment decisions. This leads investors to deploy a wide range of
strategies in their investments activities. Hedging and speculation are investment strategies
that most investors usually utilize. Hedging is an investment decision that assumes a contrary
position in an investment with the main aim of protecting itself against possible future
fluidity in the prices of assets (Bartram, 2019). It is a risk neutralizing strategy that would
prevent an investor from losing resources regardless of the direction the prices take. On the
other side, speculation involves traders making an investment on the basis of their educated
guess on where the direction they think a market will take (Bartram, 2019).
If one wants to hedge against inflation, it may advisable for them to purchase gold.
The reason for this is that gold is considered an inflationary hedge. The meaning of this is
that during inflation where the value of the dollar depreciates, the price of gold tends to be
expensive. An individual who had purchased gold before will sell gold at high prices and the
effect of the inflation will not hit them (Maghyereh, Awartani & Tziogkidis, 2017). Similarly,
one who wants to speculate may also invest in gold. The reason for this is that gold is a scarce
or limited in value and quantity. When the value of other assets in the market may decline or
depreciate tremendously, the prices of gold do not have the chance of experiencing drastic
decline in value because of its limited supply.
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Hedging and speculation are investment strategies that feature prominently in
Christianity. When examined in the prism of Bible teachings, speculation and hedging may
appear inappropriate because they symbolize the love for money and oppression of the poor.
Besides, they go against the teachings of the Bible that advises Christians not be anxious
about tomorrow (the future). It is true that speculation and hedging are investment decisions
are made for the interests of the future rather than present needs. Since it is the Lord that
controls and knows what the future beholds, it is desirable for humans to focus on today
rather than worrying about what the future holds.
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References
Bartram, S. M. (2019). Corporate hedging and speculation with derivatives.3Journal of
Corporate Finance,357, 9-34.
Maghyereh, A. I., Awartani, B., & Tziogkidis, P. (2017). Volatility spillovers and cross-
hedging between gold, oil and equities: Evidence from the Gulf Cooperation Council
countries.3Energy Economics,368, 440-453.
