Hedged Position

An investment in which risk is reduced by making an offsetting investment. There are a large number of hedging strategies that one can use. For example, one may take a long position on a security and then sell short the same security 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. A hedged position may reduce risk, but it is important to note that it also reduces profit potential.

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This type of accounting is required when a hedged position is not measured at fair value with recognition of gains/losses in income in accordance with regular GAAP.

Hedging strategies and GAAP: a marriage made in heaven? Canada's new hedge accounting rules create new ways in which to make sense of hedging activities in financial statements. Make sure you know where it works best

The taxpayer would then hold the hedged position until a future tax year, and eventually cover it with the low-basis long position.

Short sales against the box after the TRA '97

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