Rolling Hedge

DEFINITION of 'Rolling Hedge'

A strategy for reducing risk that involves using the high levels of liquidity typically present with exchange-traded futures and options in order to achieve a continual risk-offsetting position. A rolling hedge is done by closing out existing positions as they near maturity and then concurrently opening new positions with maturity dates further in the future.

BREAKING DOWN 'Rolling Hedge'

One of the main benefits of rolling a hedge is that by extending the time until maturity further into the future, there is less chance of large price movements in the contract in the short term, because the maturity date is still distant. This reduces the risk of incurring margin calls on the position.

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RELATED FAQS
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    Futures contracts are one of the most common derivatives used to hedge risk. A futures contract is as an arrangement between ... Read Full Answer >>
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    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
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