Why Do Companies Hedge?

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Companies hedge by buying a guarantee to deliver a product at a specific date for a specific price in order to make money. Get the help of a professional before trying to invest in the hedge market with tips from a financial adviser in this free video on investing and money management.

Part of the Video Series: Investments & Money Management Tips
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Video Transcript

Are you worried about the price that you are going to pay for some supply at some point up the road. Hi this is Roger Groh of Groh Asset Management. Companies try to lock in those prices by hedging. What does that mean? It means that they bought from somebody else a guarantee to deliver that product at a specific date at a specific time. Is it a big deal, it's huge. It's the second largest market in the world. It can be anything from fuel hedging for airlines to timber hedging for home builders to money hedging for banks. We all do it in one way shape or form. Is it expensive? Not if you bet right. Generally commissions are cheap in this, with large payoffs. Should you be on the sell side in this, meaning should you sell a hedge to somebody else, don't go near it. Unless you really understand that industry and what you are getting into. There's a lot of money at stake and you will lose your butt. Get help if you really want to be involved. I'm Roger Groh with Groh Asset Management thank you very much for spending time with me.


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