Quick Definition

A hedge is an investment strategy used to reduce the risk of adverse price movements in an asset by taking an offsetting position in a related asset.

Examples

• 1An investor owning stocks may buy put options to protect against potential price declines.
• 2A wheat farmer might use futures contracts to lock in a selling price for his crop, guarding against price drops.
• 3A currency trader could use forex options to hedge against potential losses due to currency fluctuations.
• 4An energy company might use swaps to hedge against the volatility in fuel prices.

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