Micro-Hedge

AAA

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. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  2. Futures Contract

    A contractual agreement, generally made on the trading floor ...
  3. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  4. Offset

    1. To liquidate a futures position by entering an equivalent, ...
  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. Taking A Look Behind Hedge Funds
    Mutual Funds & ETFs

    Taking A Look Behind Hedge Funds

  2. The Secret To Finding Profit In Pairs ...
    Options & Futures

    The Secret To Finding Profit In Pairs ...

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

    A Beginner's Guide To Hedging

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

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

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