Hedging for Small Investors

Trading is often compared to gambling, but can "water cooler" wagers such as "I bet the Dow ends up 100 points today" be considered trading? What if you are long stock -- would taking the other side of your co-worker's proposition be considered a hedge against your existing positions? Can this be considered a derivative?

The founders of HedgeStreet.com certainly would answer a resounding yes to all of the above.

The site, which launched in early October, bills itself as "the nation's first mass-market online derivatives exchange" and created a unique way for "individual investors to manage the risks in their everyday lives" according to Russell Anderson, co-founder and vice president of instrument orientation at HedgeStreeet.

A Bet Is a Bet Is a Hedge?

Almost all wagers in which there is a win/lose proposition -- that is, in which a set of criteria are either met or not met within a specified period of time -- can be considered binary options and therefore a derivatives contract.

What distinguishes HedgeStreet from sports books, online casinos and even the local bookie? Like these gambling outlets, HedgeStreet, which operates as both an exchange and clearinghouse, is a licensed operator, in this case by the Commodity Futures Trading Commission. But there are two main differences. ...