Micro-Hedge

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DEFINITION of 'Micro-Hedge'

An investment technique used to eliminate the risk of a single asset. In most cases, this means taking an offsetting position in that single asset.

If this asset is part of a larger portfolio, the hedge will eliminate the risk of the one asset but will have less of an effect on the risk associated with the portfolio.

INVESTOPEDIA EXPLAINS 'Micro-Hedge'

Say you are holding the stock of a company and want to eliminate the price risks associated with that stock. To offset your position in the company, you could take a short position in the futures market, thereby securing the stock price for the period of the futures contract. This strategy is used when an investor feels very uncertain about the future movement of a single asset.

RELATED TERMS
  1. Price Risk

    The risk of a decline in the value of a security or a portfolio. ...
  2. Long (or Long Position)

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  3. Offset

    1. To liquidate a futures position by entering an equivalent, ...
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RELATED FAQS
  1. How can derivatives be used for risk management?

    Derivatives could be used in risk management by hedging a position to protect against the risk of an adverse move in an asset. ... Read Full Answer >>
  2. How can a company hedge with currency swaps?

    Currency swaps exist because there are disparate costs in the credit markets of two different countries. A company in a currency ... Read Full Answer >>
  3. Can delta be used to calculate price volatility of an option?

    The delta of an option is a component of the Black-Scholes option pricing formula, which provides the implied volatility ... Read Full Answer >>
  4. How is fair value calculated in the futures market?

    The fair value is the theoretical calculation of how a futures stock index contract should be valued considering the current ... Read Full Answer >>
  5. What are the major types of insurance policies that insurance companies will offer?

    The principal commodities used in producing chemicals are oil, natural gas, coal and a wide variety of metals and minerals. ... Read Full Answer >>
  6. What is the difference between speculation and hedging?

    Speculators and hedgers are different terms that describe traders and investors. Speculation involves trying to make a profit ... Read Full Answer >>
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