Stocks and hedging

Hey guys!

Lets say I trade CFD, 2 stocks with different prices, would 10 stocks of stock A be a perfect hedge too stock B ? (they have different ratios)
and what about equites.
I have 10000dollar that Im gonna use on a trade. and stock a is at 500dollar per share, and stock b is at 50dollar per share(stock A was trading at 300 one year ago, and stock B was trading at 46, ratio of 6.5 and now ratio of 10. Is that the right way to approach it by, buying 20 shares of A and 200 shares of B ? or should I allways hold the same amount of stocks at each side as I hedge ? As a market crash @10% in a banking sector would move both stocks down 10 % but it would be a different amount since they are trading at different prices. but with equal amount of dollars in each trade, a unsuspected banking crash would just move both down 10%.

best regards

You need to use the same dollar amount in each position to be properly hedged.
Good luck!

For any "Hedge" to work properly you want the instrument in use for the Hedge, to work inversely to the instrument that you are buying or selling.
AND CLOSELY at that.

Now, It seems that any stock that is valued at 500 hedged with one valued at 50
would be like comparing the biggest GOLD producer stock to a DINKY LITTLE Operation that just had an IPO.

IN NO way would this be a good hedge and I really don't see even what you are trying to do here.

The point of HEDGING is when you need to protect assets in a time of uncertainty OR
WHEN you have a GREAT WINNING short or Long that may be exposed to a significant enough loss for you to take a counter trade.

If you are trying to do a straddle or a strangle just to have two opposing positions and don't know how to execute these trades,
I will guarantee you that you will lose all your money.

OR if you just DON'T know which direction the market may go but want to put a trade on = YOU WILL LOSE.

Ask SPLIT UNIT, here- or I will alert him to your question..

Also you need to give A LOT more information than provided especially with stocks than already done so.
G/L

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