Why Hedging? How Does It Work?

Hedging services are financial strategies used to protect against potential financial risks. These services aim to reduce exposure to losses or reduce the impact of negative variables on the investment portfolio or financial assets. Hedging services can be used in a variety of contexts, whether it is in financial markets, commodity markets, or even in trading operations. The primary objective of hedging services depends on the context and individual need, but most often the objectives of hedging are to protect capital from unexpected losses, reduce exposure to financial risks, improve asset and portfolio management, as well as stabilize or improve financial returns.

There Are Many Types of Hedging Services, The Most Prominent of Which Are:

1- Hedging with futures contracts: This type of hedging involves buying or selling futures contracts, to reduce the impact of changes in the prices of commodities or financial assets.

2- Hedging options: Hedging options allow the purchase of the right to buy or sell certain assets at a specific time in the future, providing protection against unwanted price fluctuations.

3- Currency deals: This type of hedging is used to protect against exchange rate fluctuations between different currencies.

4- Interest deals: used to protect against changes in interest rates.

5- Hedging with derivatives: It includes the use of complex financial instruments to reduce risks, such as exchanges.
Our dynamic hedging philosophy at ADIG is centered around an advanced financial risk management strategy, characterized by flexibility and the ability to adapt to changes in the economic and market environment. Our primary goal is to achieve “70% protection and 70% engagement”, which is combined with our strategic mix of different structuring and implementation approaches to ensure cost-effective hedging solutions. We work to implement this strategy to protect against unwanted fluctuations in prices and other financial risks in a dynamic and advanced manner, and our dynamic strategies are demonstrated through:

  • 1- Automatic adaptation: Our dynamic hedging services are based on complex mathematical models and computational software that allow automatic adaptation to changes in market and economic conditions. Financial and market data are monitored and analyzed on an ongoing basis, and hedging decisions are made based on these analyses.

  • 2- Dynamic diversification: Dynamic hedging services allow our investors to diversify effectively without the need for major changes in their portfolios. When the market environment changes, hedging strategies are adjusted according to new and changing conditions, allowing the balance between risk and return to be maintained.

  • 3- Flexibility in implementation: Our dynamic hedging services allow flexibility in implementing strategies, as they can be quickly and effectively adapted to rapid changes in the market. Hedging can also be implemented across a variety of financial instruments, including futures, options, short-term futures, and others.

  • 4- Improving investment performance: Our dynamic hedging services aim to improve investment performance by reducing price fluctuations and reducing financial risks. Thanks to this strategy, investors can achieve better results under changing market conditions.

  • 5- Comprehensive analysis: Our dynamic hedging services include comprehensive analysis of factors affecting financial markets, including economic, political and social factors. This analysis is used to identify market trends and anticipate potential changes in prices.

  • ADIG’s dynamic hedging program is not an outsourced solution (no outsourcing), but rather a comprehensive, integrated hedging program. We begin each program with dedicated workshops, which analyze the hedging structure and specific entity solutions, an agreed-upon master hedging policy is developed, and the final solution is operated directly in accordance with internal control systems, licensing processes, 24/7 market monitoring and implementation, as well as reporting. Daily and weekly. As an independent agent representing the client, we are not limited to working with one financial institution – we price across multiple banks and liquidity venues, to always ensure the best execution and pricing, resulting in significant savings.

    Our Disciplined Hedging Setup Process
    The dynamic hedging program requires between 90-120 days to fully set up and implement, and consists of the following steps:

  • 1- Exposure Analysis
  • Typically working with clients’ treasury team, we determine their current exposure and business/operational characteristics. We analyze key drivers of profit and loss, seasonal effects on cash flow, assets and revenues, cash distribution schedule, time horizons, market volatility, and underlying liquidity.

  • 2- Approval Of The Hedging Program Policy
  • We are drafting a policy document that serves as a mandate for the dynamic hedging program. This document is submitted to the clients’ board of directors for approval before implementing the hedging program. Our process ensures that the customer has complete control over your software.

  • 3- Risk Monitoring 24/7
  • The risks in each dynamic hedging program are monitored 24/7, to mitigate unquoted currency or market risks. Our Head of Operations and Compliance monitors all modifications to the hedging program to ensure that client authorization standards are always maintained and followed.

  • 4- Analysis Of Tools & Strategies
  • Once we understand the business/operations and their key drivers, we identify the combination of financial instruments that will create an effective hedging program against the identified risk exposure. ADIG strategies include the use of swaps, futures, options on currencies and commodities.

  • 5- Lines Of The Opposite Party:
  • We assist in setting up third-party hedging and execution accounts on behalf of the client with a range of reputable global financial institutions, including Macquarie Bank, JPM, Goldman Sachs, BNP Paribas, Citi, HSBC, ANZ and LMAX).