what is hedging

4 months ago 64
Nature

Hedging is a risk management strategy employed to offset losses in investments by taking an opposite position in a related asset

. It is used by investors and money managers to reduce and control their exposure to risks

. Hedging can involve various strategies, but is most commonly done with options, futures, and other derivatives

. Some examples of hedging include:

  1. Purchasing insurance against property losses
  1. Using derivatives such as options or futures to offset losses in underlying investment assets
  1. Opening new foreign exchange positions to limit losses from fluctuations in existing currency

Hedging is not a commonly used trading strategy among individual investors, and it is typically implemented at some point after an initial investment is made

. It may not make sense for long-term investors, as the costs involved with hedging may outweigh the potential benefits