Q:

Which of the following would be considered a short hedge?

a) Long the commodity and short the futures
b) Short the commodity and long the futures
c) Long the commodity and long the futures
d) Short the commodity and short the futures

A:

The correct answer is a) Long the commodity and short the futures.

A short hedge or selling hedge is when you are long the commodity (cash commodity) and short the futures contract on that commodity. A buying or long hedge would be shorting the commodity and buying the futures.
© 2004 American Investment Training, Inc.


RELATED FAQS

  1. Do hedge funds invest in commodities?

    Learn about hedge funds that invest in commodities. Read about Commodity Trading Advisors who focus specifically on trading ...
  2. Do hedge funds and mutual funds invest in commodities in high inflation environments?

    Hedge funds and mutual funds are very different types of investment vehicles.The contents of a hedge fund are determined ...
  3. What is the difference between a short position and a short sale?

    Learn how short selling and short positioning are different, specifically in regards to the nature of the commodity being ...
  4. When short selling, how long should you hold on to a short?

    Explore the reasons for short selling and the various factors that influence how long an investor may wish to maintain a ...
  5. What's the difference between a commodity and a product?

    Understand the difference between commodities and products, and learn how they are connected to each other and to market ...
RELATED TERMS
  1. Double Hedging

    Hedging a position by using futures and options, thereby doubling ...
  2. Buying Hedge

    A transaction that commodities investors undertake to hedge against ...
  3. Commodity Market

    A physical or virtual marketplace for buying, selling and trading ...
  4. Cash Price

    The actual amount of money that is exchanged when commodities ...
  5. Commercial Trader

    A classification used by the Commodity Futures Trading Commission ...
  6. Cash Commodity

    In futures trading, the cash commodity is delivered for payments. ...
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment is made with the expectation of earning a return on it. This ...
  5. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  6. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
Trading Center