Macro-Hedge

AAA

DEFINITION of 'Macro-Hedge'

An investment technique used to eliminate the risk of a portfolio of assets. In most cases, this would mean taking a position that offsets the whole portfolio. But this technique is difficult in practice because there is rarely one asset that will offset the risk of a broader portfolio, so applying a macro-hedge most likely requires taking an offsetting position in each individual asset.

INVESTOPEDIA EXPLAINS 'Macro-Hedge'

Here's an example of a macro-hedge: an index-fund manager believes there will be a loss in the index in the upcoming period. To eliminate the risk of a downward turn in the index, the manager can take a short position in the index fund's futures market that will lock in a price for the index.

RELATED TERMS
  1. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  2. Index Fund

    A type of mutual fund with a portfolio constructed to match or ...
  3. Futures

    A financial contract obligating the buyer to purchase an asset ...
  4. Long (or Long Position)

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

    The amount of a security either owned (which constitutes a long ...
  6. Risk

    The chance that an investment's actual return will be different ...
Related Articles
  1. The Secret To Finding Profit In Pairs ...
    Options & Futures

    The Secret To Finding Profit In Pairs ...

  2. A Beginner's Guide To Hedging
    Options & Futures

    A Beginner's Guide To Hedging

  3. Stock Safety: Top 3 Ways to Limit Your ...
    Options & Futures

    Stock Safety: Top 3 Ways to Limit Your ...

  4. Applying Binary Options To Equity Markets
    Options & Futures

    Applying Binary Options To Equity Markets

Hot Definitions
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center