#1. What is the difference between a long forward position and a short forward position? #2. Explain carefully the difference between hedging, speculation, and arbitrage. #3. Explain carefully the difference between selling a call option and buying a put option.

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# 1) In the long forward position an investor or the party agrees to buy the underlying asset at a specified price at a specified date whereas in the short position the investor or party agrees to sell the underlying asset at an agreed price at a specified date.

# 2) Hedging is done for safety. Hedging is done to minimize the risk of the asset of the value that one is holding.
Arbitrage is done for safe profits, Arbitrage is carried out to take advantage of price differences between two or more markets by buying and selling of shares, commodities etc until the prices becomes equal.  
Speculation is done for risky profits. Speculation is done by trading an financial instrument that is risky in anticipation of higher or significant returns.

# 3) Selling a call option is carried out when one expects the underlying stock to move downwards. The maximum gain is the premium received whereas the maximum loss is unlimited if the stock price increases substantially and we are not able to close the transaction.
Buying a put option is carried out when one anticipates the downside in the stock market by limiting the loss to the premium paid and earns potential gains with in the downside in stock. The loss is limited and the gains are substantial.