Quote:
Originally Posted by zapper
I feel, 10 to 12 times leverage is really very high for Hedging!. Most companies prefer 1:1 to 1:5 leverage only. Leverage is very important factor to be considered!.
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It's the selling point of the bank. If one says they'll provide 10:1, another'll say they'll give 12:1. And with a high leverage, if the leverage securities go down by, for eg., 5%, they can lose nearly 50% of the initial capital.
Quote:
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Amaranth's two main hedge funds lost more than $6.5 billion, or 70 percent of their assets, in September, in part because its trades were leveraged.
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To prevent these types of losses, the better firms hedge their long positions with short positions so that if there's a fall, they will nullify themselves out.
