long hedge(redirected from Buying Hedges)
The purchase of a futures contract with the intention of accepting delivery of the underlying asset. One conducts a long hedge in order to lock in a price for an asset one must purchase in the future. This protects the holder of the futures contract from volatility in the underlying asset's price. If the spot price of the underlying asset moves in a direction more beneficial for the holder, he/she can sell the futures contract and buy the asset at the spot price. An example of a long hedge is a situation in which a company needs to buy oil by June. The spot price of oil may be $70 per barrel, but the futures price for June delivery may be only $60. The company would choose to buy the futures contract at $60 per barrel. A long hedge is also called a buy hedge.
The purchase of a futures contract or call option to protect a short position against possible increases in the prices of commodities, currencies, indexes, or securities. For example, an investor might purchase a futures contract on fixed-income securities to protect against a decline in interest rates. Also called buying hedge.