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.

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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. 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 >>
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