A hedge is an investment position intended to offset potential losses that may be incurred by a
companion investment. In simple language, Hedge (Hedging Technique) is used to reduce any
substantial losses 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-thecounter and derivative products, and futures contracts.
Public futures markets were established in the 19th century[1] 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.
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1 Etymology
2 Examples
o 2.1 Agricultural commodity price hedging
o 2.2 Hedging a stock price
o 2.3 Hedging Employee Stock Options
o 2.4 Hedging fuel consumption
3 Types of hedging
o 3.1 Hedging strategies
 3.1.1 Financial derivatives such as call and put options
4 Natural hedges
5 Categories of hedgeable risk
6 Hedging equity and equity futures
o 6.1 Futures hedging
o 6.2 Contract for difference
7 Related concepts
8 See also
o 8.1 Accountant views
9 References
10 External links
[edit] Etymology
Hedging is the practice of taking a position in one market to offset and balance against the risk
adopted by assuming a position in a contrary or opposing market or investment. The word hedge
is from Old English hecg, originally any fence, living or artificial. The use of the word as a verb
in the sense of "dodge, evade" is first recorded in the 1590s; that of insure oneself against loss,
as in a bet, is from 1670s. [2]
[edit] Examples