Successful hedging gives the trader protection against commodity price changes, inflation, currency exchange rate changes, interest rate changes, etc. Hedging can also save time as the long-term trader is not required to monitor/adjust his portfolio with daily market volatility.

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Hedging provides a means for traders and investors to mitigate market risk and volatility. It minimises the risk of loss. Market risk and volatility are an integral part of the market, and the main motive of investors is to make profits.

1. Buy Defensive Exchange Traded Funds (ETFs) There are numerous “market correction protection” ETFs (FAZ, ERY, BGZ, etc.)
2. Short Selling (Short stocks that have soared and are overbought)
3. Diversify (Invest in Savings Bonds and I-Bonds)
4. Invest in Value and Income Stocks.
5. Buy Beaten Down Stocks.

Simply put, the difference between VXX and VIX is that the iPath® S&P 500 VIX Short-Term Futures ETN(VXX) is an exchange-traded note, while the CBOE Volatility Index(VIX) is an index. The VXX is based on the VIX, and it seeks to track it’s performance.

Since the CBOE Volatility Index (VIX) was introduced, investors have traded this measure of investor sentiment about future volatility. The primary way to trade on VIX is to buy exchange traded funds (ETFs) and exchange traded notes (ETNs) tied to VIX itself.

The VIX measures the implied volatility of the S&P 500 (SPX), based on the price of SPX options. When the VIX is up, it means that there are significant and rapid price fluctuations on the S&P 500. The VIX typically has a negative correlation with the S&P 500, so in periods of market stress, the VIX increases.

There are two ways to use the VIX in this manner: The first is to look at the actual level of the VIX to determine its stock-market implications. Another approach involves looking at ratios comparing the current level to the long-term moving average of the VIX.