Explain the Difference between Hedging and Speculation Using Derivatives ⎊ Path

Explain the Difference between Hedging and Speculation Using Derivatives.

Hedging is using derivatives to reduce or offset existing financial risk, aiming to protect against adverse price movements. Speculation is using derivatives to profit from anticipated price movements, essentially taking on risk for potential gain.

A DAO primarily hedges to protect its runway, while speculation is generally avoided for core treasury assets.

What Is the Primary Difference between Hedging and Speculation with Derivatives?

How Is Hedging Different from Speculation Using Derivatives?

How Does the Concept of a “Futarchy” Attempt to Improve On-Chain Governance?

What Is the Specific Risk a Custodian Takes On, Compared to a Prime Broker?

Why Is Speculation Generally Viewed as Irresponsible for a Core DAO Treasury?

What Are Synthetic Assets and How Do They Blur the Line between Hedging and Speculation?

What Is the Maximum Risk a Trader Takes When Using Leverage?

Give a Concrete Example of a DAO Hedging Its Stablecoin Exposure.

Glossar

Hedging and Speculation

Hedging ⎊ Hedging is the strategic use of financial derivatives to mitigate or offset the risk of adverse price movements in an underlying asset or portfolio.

Speculation

Objective ⎊ Speculation involves taking positions in financial derivatives based on forecasts of future price changes, aiming to generate profits from short-term market volatility.