hedging and speculation

[McMathews]

Hi all
I am unaware about the concept of hedging and speculation. What are the importance of using this and how can hedging and speculation help in avoiding loss while trading?
Regards

 

[Rhody Trader]

Trading is speculation. Hedging is the attempt to reduce or eliminate one or more types of risk from a position. For example, someone trading (speculating) in single stocks from the long side might short an index to offset the risk of a general market decline.

 

[aj7harrison]

hedging involves taking an offsetting position in a derivative n order to balance any gains and losses to the underlying asset. Hedging attempts to eliminate the volatility associated with the price of an asset by taking offsetting positions contrary to what the investor currently has. The main purpose of speculation on the other hand, is to profit from betting on the direction in which an asset will be moving.