Learn what hedging is, how this risk management strategy works, its pros & cons, and how everyday investors use it to protect portfolios. The hedging meaning is simple: you don’t need to predict the future; you only need to prepare for it. A hedge may not give extra profit, but it gives stability. Definition: Hedging means limiting something by certain conditions in general terms; however, in financial terminology, hedging is a process of protecting oneself against any loss in investment, i.e., it is a method of using market instrument tactically to compensate any unfavourable movements of prices, or we can say the investor hedge one investment by hedging another. Hedging is a strategic move used to protect investments from potential losses due to market fluctuations. It’s essentially a risk management technique like buying insurance for your portfolio where investors take an offsetting position in a related asset to reduce exposure to adverse price movements. Whether it’s through derivatives like options and futures or simpler methods like diversification hedging helps cushion the impact of volatility. Understanding what is hedging and how it ...
