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Hedge

Meaning: 

A Hedge is defined as a financial strategy used to protect against potential losses in an investment. It functions like an insurance policy for your investment portfolio. In simple r  terms, hedging is about reducing risk associated with investments.


Example:
For instance, if you have stocks and are worried about a market decline, you might buy options or futures contracts to limit your losses. This protective measure is known as a hedge.

How to understand Hedging:

Hedging reduces risk during times of market volatility and protects profits that have already been earned.
It is particularly helpful for big institutions, traders, and businesses involved in international trade.

Importance of Hedging:   

Hedging does not guarantee profits, but it effectively reduces potential losses.



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