Hedging a Portfolio Using Index Futures
Hedging With Index Futures is something every serious Indian trader and investor should understand clearly. Part of our Futures Trading: The Complete Guide series.
Hedging With Index Futures: Why It Matters for Indian Traders
Getting a solid handle on hedging with index futures is a practical, worthwhile step for anyone actively trading or investing in Indian markets, since it directly shapes the quality of decisions made day to day. Combined with disciplined risk management, understanding hedging with index futures thoroughly helps traders avoid common, avoidable mistakes and build a more consistent, research-backed approach over time.
For official reference data and updates relevant to this topic, see NSE India. Our own research services build on exactly this kind of structured understanding to support your trading and investing decisions.
Beyond speculation, index futures are commonly used to protect an existing equity portfolio
during periods of expected weakness, without needing to sell individual holdings.
The Basic Idea
Shorting index futures against a long equity portfolio offsets losses in the portfolio if the market falls,
since gains on the short futures position can help balance the decline.
Sizing the Hedge
The hedge size depends on how closely your portfolio tracks the index and how much protection you want — a
partial hedge reduces risk without fully neutralising potential upside.
When Traders Typically Hedge
Hedging is more common ahead of known uncertain events — major elections, global central bank decisions — where
downside risk feels elevated but selling the underlying portfolio isn’t desirable.
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