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So they simply bet on sports results after thoroughly researching the odds? Where is the hedging in that?

• andrew1 16y ago
  The term 'hedge fund' is used much more loosely these days. There's no requirement that a hedge fund be hedged against anything.
  • p0ckets 16y ago
    It would be hedging if a team owner to bet against his own team.
    • tome 16y ago
      Technically, yes, but it would also be highly illegal!
• seanos 16y ago
  You can short a bet (known as a laying) as well as go long (known as backing).
• greyman 16y ago
  It works like this: for example, you bet before the football match that the result will NOT be a draw. Then, when favourite scores a goal, you can place a second bet, this time you bet that it WILL be a draw. But after the favourite scored a goal, the odds for draw moved up (since it is now less likely that the game ends in a draw). So no matter what will be the result, you win (it's exactly the same principle as with stock trading or forex, where you sell when the price is high or buy when the price is low). Of course, it might happen that as the match going on, the draw is more and more likely, so the odds for a draw is getting lower. Then at some time, the trader can still bet on a draw (like in the first example), but this time he will have a loss, but a lot lower loss as if he would place just only one bet and lost. And that's I think is called hedging, you bet on all outcomes in different time points.
  • limmeau 16y ago
    Thanks. That was what I was looking for in the article.
  • andrew1 16y ago
    The process you've described isn't really hedging, it's effectively closing out a trade, either through booking a profit, or mitigating a loss. The equivalent in the equities world is roughly these two cases; today you buy some shares in Acme Oil Company, tomorrow they announce that they've discovered a massive oil well and their share price rockets, so you sell and book a nice profit; or today you buy some shares in Acme Oil Co, tomorrow they announce they've sprung a leak off the coast of Florida and their share price falls, you sell your shares to mitigate the losses you've suffered (and the potential for more losses). That is not hedging; hedging is the process of considering (at the point of purchase) how you can protect your investment against unquantified events. For example you might decide that Apple as a company is undervalued so you want to buy some of their shares, but the markets seem volatile at the moment so you want to hedge yourself against large movements in the index. You can do this by selling short on the index at the same time as you buy your Apple shares. So suppose you're correct about Apple (that they're undervalued) and the market realises this and their share price increases by 1% relative to the index, without your hedge this could see your investment say gain 4% if the index goes up 3%, or lose 2% if the index falls by 3%, so you get either +4% or -2%. Now suppose that you have your index hedge in place, if the market rises by 3%, you get 4% on Apple -3% on the index = 1%, if the market falls by 3% you get -2% on Apple and 3% on the index = 1%. So either way you get the 1% profit through your Apple intuition. By selling the index you've hedged yourself against movements in the underlying market. So to hedge a bet on something like Roger Federer winning against Rafael Nadal in a match today, you need to try and find something else to bet on at the same time. I can't really think of how to do this though.
• adw 16y ago
  http://vimeo.com/8995197 http://vimeo.com/8995197 (done in 2006, so a little dated). Disclaimer - Sean Park is one of our investors.