hedging


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Related to hedging: hedging bets, Currency Hedging

Hedging

A strategy designed to reduce investment risk using call options, put options, short-selling, or futures contracts. A hedge can help lock in profits. Its purpose is to reduce the volatility of a portfolio by reducing the risk of loss.

Hedge

To reduce the risk of an investment by making an offsetting investment. There are a large number of hedging strategies that one can use. To give an example, one may take a long position on a security and then sell short the same or a similar security. This means that one will profit (or at least avoid a loss) no matter which direction the security's price takes. Hedging may reduce risk, but it is important to note that it also reduces profit potential.

Hedging.

Hedging is an investment technique designed to offset a potential loss on one investment by purchasing a second investment that you expect to perform in the opposite way.

For example, you might sell short one stock, expecting its price to drop. At the same time, you might buy a call option on the same stock as insurance against a large increase in value.

hedging

the act of reducing uncertainty about future (unknown) price movements in a COMMODITY (rubber, tea, etc.), FINANCIAL SECURITY (share, stock etc.) and FOREIGN CURRENCY. This can be done by undertaking forward sales or purchases of the commodity, security or currency in the FORWARD MARKET; or by taking out an OPTION which limits the option holder's exposure to price fluctuations. See EXCHANGE RATE EXPOSURE. HEDGE FUND.

hedging

the act of reducing uncertainty about future (unknown) price movements in a COMMODITY (rubber, tea, etc.), FINANCIAL SECURITY (share, stock, etc.) or FOREIGN CURRENCY. This can be done by undertaking forward sales or purchases of the commodity, security or currency in the FUTURES MARKET, or by taking out an OPTION that limits the option-holder's

exposure to price fluctuations. See EXCHANGE RATE EXPOSURE.

References in periodicals archive ?
Therefore, the investment manager's use of short sales, futures, options, forwards or other types of contracts would not fall under the hedging regulations, and the tax treatment of these contracts would be governed by the traditional tax rules.
Controversial accounting procedures for hedging anticipated future exposures vividly demonstrate the rampant confusion.
The company has several people dedicated to hedging full time in its Treasury group.
Work on the hedging subproject started in late 1991, and the Board is currently deliberating some of the issues.
However, the principal rules characterizing hedging gains and losses as ordinary are effective for all open years.
91-4, Hedging Foreign Currency Risks with Complex Options and Similar Transactions, was intended to supplement Issue no.
The IRS has begun raising hedging issues more frequently on audit and examining whether taxpayers have proper identifications.
Commissioner,(4) the Tax Court upheld the taxpayer's characterizations of certain transactions as hedging positions that generated ordinary gains or losses.
Barring that, it should never be too late to start hedging, and it can never be too early to define your risk management policy and reporting tools to measure your hedging performance.
In reviewing hedging transactions, it is also advisable to assess whether they were properly identified, as required by Regs.
Richardson on the proposed regulations relating to hedging of property by a consolidated group.