Finance Glossary
Hedge Definition
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Hedge
Use of investments to manage commercial risk, or to minimise a potential loss to an existing position or known commitment.
By using two counterbalancing investment stragies, any losses caused by price fluctuations are minimised.
For example, a trader in commodities buys an amount of one particular item. At the same time he also makes a contract to sell an amount of a similar item at a later date.
Thus if the price of the item he has bought falls, he can still recover money by selling the similar item at the earlier, higher price.
Use of investments to manage commercial risk, or to minimise a potential loss to an existing position or known commitment.
By using two counterbalancing investment stragies, any losses caused by price fluctuations are minimised.
For example, a trader in commodities buys an amount of one particular item. At the same time he also makes a contract to sell an amount of a similar item at a later date.
Thus if the price of the item he has bought falls, he can still recover money by selling the similar item at the earlier, higher price.
