hedging

  

Definition

A risk management strategy used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities. In effect, hedging is a transfer of risk without buying insurance policies.

Hedging employs various techniques but, basically, involves taking equal and opposite positions in two different markets (such as cash and futures markets). Hedging is used also in protecting one's capital against effects of inflation through investing in high-yield financial instruments (bonds, notes, shares), real estate, or precious metals.


Use hedging in a sentence

  • It always made Rex a little nervous when his broker Norman was hedging his investments, but Norman assured him it was a common risk management strategy and just involved a little off-setting between accounts.

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  • When you are going to make a very risky investment it is wise to try hedging your bet so you can't lose everything.

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  • Hedging your bet when you are making a risky investment can help to protect you from more losses than you can afford.

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