Anticipatory Hedge

AAA

DEFINITION of 'Anticipatory Hedge'

A hedge position taken in anticipation of a future buy or sell transaction. An anticipatory hedge is used when an investor intends on entering the market and wants to reduce his or her risk by taking a long or short position in the target security. This type of hedge typically involves taking a long position, but can also involve short positions.

INVESTOPEDIA EXPLAINS 'Anticipatory Hedge'

Anticipatory hedges are not only used by investors. They are also a tool that can be used by businesses, such as farmers. For example, a farmer exports wheat from the United States to England. He will be paid in dollars once the goods reach the final destination, but the shipping time may take several weeks. The farmer is worried that the dollar will lose value over that time period when compared to the pound, so he takes a short position on the dollar so that he can hedge the anticipated decline. This is an anticipatory hedge because the farmer is taking a hedging strategy on a good, in this case the dollar, that he does not have yet.

RELATED TERMS
  1. Downside Protection

    The use of an option or other hedging instrument in order to ...
  2. Long Hedge

    A situation where an investor has to take a long position in ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  4. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  5. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  6. Short Hedge

    An investment strategy that is focused on mitigating a risk that ...
Related Articles
  1. Options & Futures

    Hedging Basics: What Is A Hedge?

    This strategy is widely misunderstood, but it's not as complicated as you may think.
  2. Active Trading

    Commodities: The Portfolio Hedge

    These diverse asset classes can provide downside protection and upside potential. Find out how to use them.
  3. Mutual Funds & ETFs

    Taking A Look Behind Hedge Funds

    Hedge funds can draw returns well above the market average even in a weak economy. Learn about the risks.
  4. Options & Futures

    A Beginner's Guide To Hedging

    Learn how investors use strategies to reduce the impact of negative events on investments.
  5. Forex Education

    The International Money Market

    Banks, corporations, traders and speculators all use the IMM to borrow, lend, trade, profit, finance, speculate and hedge risks.
  6. Options & Futures

    A Brief History Of The Hedge Fund

    Find out how this U.S.-born investment innovation became a $1-trillion industry that's both praised and vilified by the media.
  7. Options & Futures

    The 4 Advantages of Options

    Flexible and cost efficient, options are more popular than ever. Find out why.
  8. Investing Basics

    The Strange New World Of The Bitcoin Exchange Futures Market

    We explain the basics of the Bitcoin exchange and futures market.
  9. Economics

    Which country has the most gold?

    Learn which countries hold the most in gold reserves, and explore the reasons holding gold may be beneficial to a country's economy.
  10. Chart Advisor

    Commodities Are Pulling Chile And Brazil Lower

    Strategic investors should not only keep an eye on charts of falling commodity prices, but they should also watch the impact falling commodities are having on South American nations like Chile ...

You May Also Like

Hot Definitions
  1. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  2. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  3. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  4. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  5. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
  6. Bank Guarantee

    A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor ...
Trading Center