Hedge Accounting

Filed Under » , , , ,
Dictionary Says

Definition of 'Hedge Accounting'

A method of accounting where entries for the ownership of a security and the opposing hedge are treated as one. Hedge accounting attempts to reduce the volatility created by the repeated adjustment of a financial instrument's value, known as marking to market. This reduced volatility is done by combining the instrument and the hedge as one entry, which offsets the opposing movements.
Investopedia Says

Investopedia explains 'Hedge Accounting'

The point of hedging a position is to reduce the volatility of the overall portfolio. Hedge accounting has the same effect except that it's used on financial statements. For example, when accounting for complex financial instruments, such as derivatives, the value is adjusted by marking to market; this creates large swings in the profit and loss account. Hedge accounting treats the reciprocal hedge and the derivative as one entry so that the large swings are balanced out.

Articles Of Interest

  1.

    Credit Default Swaps: An Introduction

    This derivative can help manage portfolio risk, but it isn't a simple vehicle.

  2. Hedge Fund Due Diligence

    Analyzing a hedge fund will help you determine whether it's a good investment and a good fit.

  3. 7 Hedge Fund Manager Startup Tips

    Starting a hedge fund is the new American dream. Find out how you can pull it off.

  4. 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.

  5. A Beginner's Guide To Hedging

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

  6. How The Big Boys Buy

    Learn what those in-the-know look for when acquiring a company.

  7. How Interest Rates Affect The Housing Market

    Understand how rate changes can affect home prices, and learn how you can keep up.

  8. Basic Investment Objectives

    You might know about different asset types, but do you know how each type contributes to a particular goal?

  9. Economic Indicators That Do-It-Yourself Investors Should Know

    Understanding these investing tools will put the market in your hands.

  10. Introduction To The Portfolio Dedicated Strategy

    Dedicated Investment Portfolio strategies have been used by institutional investors like pension funds and insurance companies for many years and have gained some popularity with individual investors ...
comments powered by Disqus
Marketplace
Hot Definitions

  1. Wanton Disregard

    A standard of severe negligence. Wanton disregard is a very serious accusation that indicates that a person behaved extremely recklessly.

  2. Ultra ETF

    A class of exchange-traded funds (ETF) that employs leverage in an effort to achieve double the return of a set benchmark.

  3. Toehold Purchase

    A purchase of less than 5% of a target company's outstanding stockmade by an acquiring company. A toehold purchase of just under 5%, while not a significant stake in a firm, allows the shareholders a "toe-holds" grip on the company and its decision making.

  4. Samurai Bond

    A yen-denominated bond issued in Tokyo by a non-Japanese company and subject to Japanese regulations.

  5. Chartalism

    A non-mainstream theory of money that emphasizes the impact of government policies and activities on the value of money.

  6. Dead Presidents

    Slang referring to U.S. paper currency. Dead presidents can refer to any unit of currency, but most often refers to George Washington, whose picture is on the $1 bill.
Trading Center