Michael A61 Hill

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What are contingent claims in trading risk management?

Contingent claims are financial instruments whose payoffs depend on specific events. Options are the most common—profits materialize only if conditions are met. In forex, barrier options (knock-in/knock-out) activate or expire based on price levels. Institutions use contingent claims for tailored hedges, e.g., airlines buying oil call options that only trigger if crude breaches $100. Benefits: precise risk management at lower cost than vanilla hedges. Risks: complexity, valuation difficulty, and counterparty risk. Retail rarely accesses exotic claims but should understand that markets offer structured ways to “pay only for protection when needed.” This mindset encourages efficiency in risk spending. Q416. What is performance benchmarking in forex trading?