DEFINITION of 'Portfolio Insurance'

1. A method of hedging a portfolio of stocks against the market risk by short selling stock index futures.

2. Brokerage insurance such as the Securities Investor Protection Corporation (SIPC).

BREAKING DOWN 'Portfolio Insurance'

1. This hedging technique is frequently used by institutional investors when the market direction is uncertain or volatile. Short selling index futures can offset any downturns, but it also hinder any gains.

2. SIPC is an insurance that provides brokerage customers up to $500,000 coverage for cash and securities held by a firm.

RELATED TERMS
  1. Securities Investor Protection ...

    A nonprofit corporation created by an act of Congress to protect ...
  2. Short Hedge

    An investment strategy that is focused on mitigating a risk that ...
  3. Selling Hedge

    A hedging strategy with which the sale of futures contracts are ...
  4. Brokerage General Agent

    An independent firm or contractor working for an insurance company ...
  5. Personal Lines Insurance

    Property and casualty insurance products for individuals that ...
  6. Prime Brokerage

    A special group of services that many brokerages give to special ...
Related Articles
  1. Insights

    What Happens When A Stock Broker Goes Bust?

    While there is nothing much that can be done against the market volatility, there is a protection mechanism in place in case the broker firm runs into a financial trouble.
  2. Financial Advisor

    Are My Investments Insured Against Loss?

    Money invested in a brokerage account has some protection, but that doesn't mean you can't lose it.
  3. Investing

    Bank Failure: Will Your Assets Be Protected?

    The SIPC and FDIC insure against personal financial ruin when banks or brokerages go belly up.
  4. Trading

    Hedging Basics: What Is a Hedge?

    This strategy is widely misunderstood, but it's not as complicated as you may think.
  5. Investing

    A Beginner's Guide To Hedging

    Hedging is a practice every investor should know about.
  6. Trading

    A Beginner's Guide to Hedging

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

    Hedging Risk for Beginners: How and When to Do It

    Hedging risk is always a good idea. Here is how sophisticated investors go about it.
  8. Managing Wealth

    Avoid Future Shock By Protecting Your Portfolio With Futures

    Worried about protecting your portfolio of diversified stocks and assets? Using futures with correct strategies can help.
  9. Investing

    Hedging for Beginners: A Guide

    People hedge as insurance against market volatility. Anyone can do it; here's a primer.
RELATED FAQS
  1. I know there is a form of deposit insurance where a portion of my bank account deposits ...

    First things first, it's only partially correct to think that a portion of your bank deposits is protected. The Federal Deposit ... Read Answer >>
  2. If I use hedging as a risk strategy, do I have to keep my eye on my portfolio all ...

    Understand the concept of hedging and learn how this key element to portfolio management can help an investor protect profits ... Read Answer >>
  3. Can you short sell stocks that are trading below $5? My broker says that I can't.

    Short selling can be very risky for both the investor and the broker. Brokers will often tell investors that only stocks ... Read Answer >>
  4. What happens if you don't hedge your investments?

    Learn the purpose, advantages and disadvantages of hedging, and find out how to utilize hedging to enhance an overall investment ... Read Answer >>
  5. Do common stock owners have any protections against bankruptcy or fraud?

    Learn about common stock ownership including the standing of holders in the event of bankruptcy or fraud, and familiarize ... Read Answer >>
  6. Are 401ks FDIC insured?

    Learn what part of your 401(k) retirement plan is covered by FDIC insurance, and what part is not. Find out what happens ... Read Answer >>
Hot Definitions
  1. Revolving Credit

    A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is ...
  2. Marginal Utility

    The additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important ...
  3. Contango

    A situation where the futures price of a commodity is above the expected future spot price. Contango refers to a situation ...
  4. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  5. Acid-Test Ratio

    A stringent indicator that indicates whether a firm has sufficient short-term assets to cover its immediate liabilities. ...
  6. Floating Exchange Rate

    A country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that ...
Trading Center