Hedge

Dictionary Says

Definition of 'Hedge'

Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.
Investopedia Says

Investopedia explains 'Hedge'

An example of a hedge would be if you owned a stock, then sold a futures contract stating that you will sell your stock at a set price, therefore avoiding market fluctuations.

Investors use this strategy when they are unsure of what the market will do. A perfect hedge reduces your risk to nothing (except for the cost of the hedge).

Related Definitions

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  • Hedge Ratio

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  • Hedged Tender

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    • Catastrophe Futures

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    • Double Hedging

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    • Downside Protection

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    • Perfect Hedge

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    • Hedgelet

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    • Hedge Fund

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    • De-hedge

      The process of closing out positions that were originally put in place to act as a hedge in one's portfolio. De-hedging involves going back into the marketplace and closing out hedged ...
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