Financial Terms: What is Hedging? Know How to Hedge Your Portfolio in Volatile Markets

Financial Tips: Hedging strategies include buying put options or taking short bets in the futures market to mitigate prospective losses and protect capital. These strategies give a type of “insurance” that, although not providing complete protection, provides a claim against losses if the stock price falls. Hedging is a method that protects a business against potential financial losses caused by market swings, currency risks, or commodity price changes. Companies can use financial products such as futures, options, or derivatives to reduce the impact of adverse price swings on their profitability. 

What is Hedging?

Hedging is a risk-management approach that experienced investors frequently employ. For example, if the stock price declines, a put option can generate profit, offsetting the stock's loss. Similarly, taking a short position in the futures market can act as a safeguard. Prudent investment entails developing a well-thought-out strategy, which frequently includes professional financial counsel, as well as employing hedging measures to mitigate potential losses. This method to risk management ensures that businesses are prepared for the market's inevitable swings, avoiding significant financial losses.