Definition
Hedging is a risk management strategy used to offset potential losses in one investment by taking an opposite position in a related asset, typically through derivatives like options, futures, or swaps.
Related Services
Common in investment management, treasury operations, commodity trading, currency risk management, and financial derivatives services.
Problem and Application
While hedging protects against downside risks, it can also limit potential gains and involves costs. Misuse or misunderstanding of hedging strategies can result in increased risk exposure or unnecessary expenses.
Conclusion
Hedging is an essential tool for financial risk management, providing protection against volatility in markets, currencies, interest rates, and commodities when executed properly.
