Hedge (finance)
A hedge is an investment position intended to offset potential losses/gains that may be incurred by a companion investment. In simple language, a hedge is used to reduce any substantial losses/gains suffered by an individual or an organization.
A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, many types of over-the-counter and derivative products, and futures contracts.
Public futures markets were established in the 19th century to allow transparent, standardized, and efficient hedging of agricultural commodity prices; they have since expanded to include futures contracts for hedging the values of energy, precious metals, foreign currency, and interest rate fluctuations.
Read more about Hedge (finance): Etymology, Types of Hedging, Natural Hedges, Categories of Hedgeable Risk, Hedging Equity and Equity Futures, Related Concepts
Famous quotes containing the word hedge:
“Take the instant way,
For honor travels in a strait so narrow,
Where one but goes abreast. Keep then the path,
For emulation hath a thousand sons
That one by one pursue. If you give way,
Or hedge aside from the direct forthright,
Like to an entered tide, they all rush by
And leave you hindmost.”
—William Shakespeare (1564–1616)