I'm new to the markets, previously I went to a financial advisor and entered into a 'buy and hold' investment in an ASX200 index fund. I'd like to limit any further losses should the market head further down.
Easy solution is sell up and wait for a recovery. But there would be fees involved in re-entering the fund. Plus I'd struggle with when to re-enter the market, wait too long and you miss the boat, get in too early and you're back where you started. So with that in mind I'm looking to hedge my long position.
What is the best way to hedge an investment and why? Would you use futures, CFD's or options? I haven't ever looked at options, I understand the basic concept but don't know enough to trade them. Futures seem better than CFD's due to CFD's being a market maker product.
Are there any traps that a newbie could fall into trying to hedge a position? For example, if I were to use CFD's, by going short I'd get hit with a fee for any dividend payments while I'm short. But then again my long position should also gain the same amount from any dividend payments.
Do you just go short with no stop loss and wait until the market stabilizes? Or is there a smart way of hedging a long term investment? Do you treat each day as a new trade, setting a new entry point and stop loss?
If you go short with no stop then for every day that the market goes up you lose gains. But if a newbie like me tries to be smart and only short the down days I might just lose even more money. For example, I go short with a 40 point stop, the market may move down enough to trigger my short entry, then move straight up to trigger my stop, then turn around and finish the day low. So even though I went short and the market finished down for the day, all I did was lose 40 points (plus the big spread if CFD) by being stopped out.
Note that I am not looking for specific advice and quite frankly, blindly following other people's advice is what got me into this mess in the first place. But (I feel) I'm running short on time before the next market fall, so any opinions or 'food for thought' to help speed my education would be greatly appreciated.