Anticipatory Hedge

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.

BREAKING DOWN '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. Short Hedge

    An investment strategy that is focused on mitigating a risk that ...
  2. Cross Hedge

    The act of hedging ones position by taking an offsetting position ...
  3. Anticipatory Breach

    In contract law, an action that shows a party's intention to ...
  4. Selling Hedge

    A hedging strategy with which the sale of futures contracts are ...
  5. Hedge Fund

    An aggressively managed portfolio of investments that uses leveraged, ...
  6. Hedge Ratio

    1. A ratio comparing the value of a position protected via a ...
Related Articles
  1. Professionals

    Hedging

    Hedging
  2. Mutual Funds & ETFs

    Hedge Funds

    Hedge Funds
  3. Professionals

    Hedge Fund Basics

    CFA Level 1 - Hedge Fund Basics. Learn the historical background of hedge funds and how they operate today. Discusses various hedging strategies and fund objectives.
  4. Options & Futures

    A Beginner's Guide To Hedging

    Learn how investors use strategies to reduce the impact of negative events on investments.
  5. Options & Futures

    Hedging Basics: What Is A Hedge?

    This strategy is widely misunderstood, but it's not as complicated as you may think.
  6. Investing Basics

    Hedging Risk for Beginners: How and When to Do It

    Hedging risk is always a good idea. Here is how sophisticated investors go about it.
  7. Options & Futures

    For Maximum Market Returns, Get Creative With Hedges

    Proper hedges help to contain your losses while still allowing profits to grow.
  8. Professionals

    Short Hedging and Long Hedging

    Short Hedging and Long Hedging
  9. Mutual Funds & ETFs

    Hedging With ETFs: A Cost-Effective Alternative

    The benefits of ETFs for hedging are clear and investors of all sizes are taking notice.
  10. Investing Basics

    Hedging for Beginners: A Guide

    People hedge as insurance against market volatility. Anyone can do it; here's a primer.
RELATED FAQS
  1. What happens if you don't hedge your investments?

    Learn the purpose, advantages and disadvantages of hedging, and find out how to utilize hedging to enhance an overall investment ... Read Answer >>
  2. What is a cross hedge?

    Cross hedging is when you hedge a position by investing in two positively correlated securities or securities that have similar ... Read Answer >>
  3. How do hedge funds use short selling?

    Learn how hedge funds use short selling to profit from stocks that are falling in price. Explore different analytical techniques ... Read Answer >>
  4. Can you invest in hedge funds?

    Read about what it takes to invest in a hedge fund, and learn how some investors find ways to indirectly capture a hedge ... Read Answer >>
  5. What does a hedge fund do?

    Read how hedge funds differ from other investment vehicles and how their investment strategies make them unique and potentially ... Read Answer >>
  6. If I use hedging as a risk strategy, do I have to keep my eye on my portfolio all ...

    Understand the concept of hedging and learn how this key element to portfolio management can help an investor protect profits ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  3. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  4. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  5. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  6. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
Trading Center