Hedging

Hedging is a method of reducing the risk of loss caused by price fluctuations. It includes nearly simultaneous sale or purchase of equal quantities of the identical commodities, in two distinct markets hoping that a future change in price in one market will be compensated by an opposite change in the other market. Its main objective is to offset potential losses or gains.

A Certain Method of Risk Reduction

Hedging is a method of reducing the risk of loss under any eventuality. It includes nearly a simultaneous sale or purchase of equal quantities of identical commodities in two distinct markets, hoping that a negative change of price in one market is compensated by a positive change in another. Its main objective is to offset potential losses; gains may not be as high as a result of risk reduction.

How To Hedge

There are several distinct ways and investment hedging methods for investors. It is of great use to learn certain methods and strategies in order to achieve a perfect hedge - reduce all the underlying risks, except for the premium costs.