hedging

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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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.

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.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson

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.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005