hedging

The practice of offsetting the price risk inherent in any cash market position by taking an equal but opposite position in the futures market. Hedgers use the futures markets to protect their business from adverse price changes. Selling ( Short) Hedge - Selling futures contracts to protect against possible declining prices of commodities that will be sold in the future. At the time the cash commodities are sold, the open futures position is closed by purchasing an equal number and type of futures contracts as those that were initially sold. and Purchasing ( Long) Hedge - Buyer futures contracts to protect against a possible price increase of cash commodities that will e purchased in the future. At the time the cash commodities are bought, the open futures position is closed by selling an equal number and type of futures contracts as those that were initially purchased. Also referred to as a buying hedge. Chicago Board of Trade glossary
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Transferring the risk of loss due to adverse price movement through the purchase or sale of contracts in the futures markets. The position in the futures market is a substitute for the future purchase or sale of the physical commodity in the cash market. If the commodity will be bought, the futures contract is purchased ( long hedge); if the commodity will be sold, the futures contract is sold ( short hedge). The CENTER ONLINE Futures Glossary
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A strategy designed to reduce investment risk using call options, put options, short-selling, or futures contracts. A hedge can help lock in profits. Its purpose is to reduce the volatility of a portfolio by reducing the risk of loss. Bloomberg Financial Dictionary
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1 - Taking a position in a futures market opposite to a position held in the cash market to minimize the risk of financial loss from an adverse price change. 2 - A purchase or sale of futures as a temporary substitute for a cash transaction which will occur later. See long hedge and short hedge. Chicago Mercantile Exchange Glossary
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Buying one security and selling another in order to reduce risk. A perfect hedge produces a riskless portfolio.
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Reducing the risk of a cash position in the futures instrument to offset the price movement of the cash asset. A broader definition of hedging includes using futures as a temporary substitute for the cash position. LIFFE

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hedge hedge 2 verb [intransitive, transitive]
1. FINANCE if you hedge a financial risk, you protect yourself against it, for example with futures (= agreements to buy or sell currencies etc on a fixed date in the future at a fixed price) or option S (= rights to buy or sell currencies etc at a particular price within a particular period of time or on a particular date in the future):

• I've never hedged currencies before. But I could see the dollar was getting lower, and I hedged for the first time, betting that the dollar would rise.

• Northwest Airlines saved more than $7 million in fuel costs because it hedged 4.2 million gallons of its fuel purchases for each month by buying futures contracts.

— hedging noun [uncountable] :

• Manufacturers have been doing more hedging because they expect prices for copper to rise.

• sophisticated currency hedging techniques

2. hedge your bets to reduce your chances of failure or loss by having several choices available to you:

• Promoters, uncertain whether losing weight was going to stay popular, hedged their bets by advertising that their products could help you add weight or reduce it.

hedge against something phrasal verb [transitive] FINANCE
if you hedge against, or hedge yourself against, a financial risk, you protect yourself against it by hedging:

• Consumers of a raw material can hedge against price movements through the futures markets.

• Many companies have not hedged themselves against a rising yen.

• Although invested in Europe, they weren't sufficiently hedged against currency changes.

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   An action or strategy designed to minimize risk. A hedge often takes the form of a transaction in one market or asset, which protects against losses in another, e.g. a company buys an FX (foreign exchange) option to protect against the risk to its business of fluctuations in spot currency rates. Those pursuing hedging strategies are known as hedgers.
   ► See also Speculator.

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hedging UK US /ˈhedʒɪŋ/ noun [U] FINANCE, STOCK MARKET
the activity of reducing the risk of losing money on shares, bonds, etc. that you own, for example, by buying futures (= agreements to sell shares for a particular price at a date in the future) or options (= the rights to buy or sell shares for a particular price within a particular time period): »

Originally hedge funds took a more traditional approach to hedging: they bought shares they thought would rise in companies they expected to do well.

»

Hedging instruments such as futures contracts are priced in dollars.

»

a hedging policy/strategy/programme


Financial and business terms. 2012.

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