i.e To ‘recreate’ (ignoring costs/spreads etc) a £10,000 holding of shares that cost £1-00 a share, an investor would bet £100 a point (a penny) – since an increase of 1p in the real-world share portfolio would be equal to 10,000 x 0.01 = £100.

It’s very easy to get lost in the figures, or to accidentally take on huge leverage.

I consider myself reasonably numerate, and I knew exactly what my real shareholding was. However, what I didn’t get right was how IG Index denominated the company, ie how many IG units to buy to hedge x real shares. When IG wanted £500 more, I couldn’t convince myself the value of my tax-embargoed shareholding had gone up by £500, so I was on the wrong track or too highly geared. I’d be interested to know how one should go about that sort of thing. The relationship didn’t seem to be one to one

Trying to hedge out for example the movement in the oil price from the performance of a small-cap oil explorer is rocket science, which is why so many Phds work for hedge funds.

This article should be considered as a bit of insight into how hedge strategies work, and as I hope I said sufficiently inside the article, NOT as a suggestion anyone use them. Perhaps I’ll change the word ‘Note’ in the alert box near the start to your phrase ‘wealth warning’.

Thanks for the heads up.

These have to be held for five years but are purchased at a 41% tax advantage. Either I screwed up or the spread betting firm I used has a tracking error, as results quickly showed me this was a pool too deep for me to swim in. Counterintuitively, while my employer’s share price has gone down the pan, the combination of the 41% tax advantage and the dividends over five years mean I’m still reasonably well ahead.

I always thought that many shorting options were extremely risky because there was no limit to the downside (i.e. you can lose more than you wager). I suppose sticking to Short ETFs tracking indexes would be one way around this, but I’ve not seen very many of these in Britain.

On Position Sizing, it would be really helpful to know what the correlation is between different asset classes in Britain – Property (via Reits) Equities, Bonds, Commodities, and Cash. At the moment it’s easy to find plenty of people who think all these classes are expensive, which makes hedging this way seem like guesswork!