UK Accounting Glossary
The act of one who hedges (in various senses).
Hedging is a risk management strategy used to limit or offset the probability of a loss from fluctuations in the prices of commodities, currencies, or securities.
In essence, hedging is a transfer of risk without buying insurance policies.
Hedging employs various techniques but, basically, involves taking equal and opposite positions in two different markets (such as cash or futures markets). Hedging is also used to protect one’s capital against the effects of inflation from investing in high-yield financial instruments (bonds, shares, notes), precious metals, or real estate.
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This glossary post was last updated: 5th January 2020.