perfect hedge

Perfect hedge

A situation in which the profit and loss from the underlying asset and the hedge position are equal.

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perfect hedge

A hedge that exactly offsets any gains or losses from an existing investment position. An example of a perfect hedge is the short sale of an owned security in order to lock in an existing profit and transfer it to a subsequent tax year. Because very few hedges are perfect, most of them operate merely to offset a portion of losses or gains. See also risk hedge.