Hedging Definition

Hedging is a risk management strategy used to offset potential losses in one position by taking an opposite position in a related asset.

What is Hedging?

Hedging does not eliminate risk entirely but can reduce exposure to adverse price movements.

Traders and businesses use hedging to protect against currency, commodity, or interest rate fluctuations.

An exporter agreeing to sell foreign currency in advance to protect against exchange rate swings is hedging.

Hawkish describes a central bank or policymaker stance that favors higher interest rates to control inflation.

A hedge fund is a pooled investment vehicle that uses a range of strategies, often including leverage and derivatives, to generate returns.

High-frequency trading uses powerful computers and algorithms to execute large numbers of orders at very high speeds.