Hedge

A transaction that reduces the risk on an existing investment position. A hedge is a transaction which is used to cover for any losses that may be incurred on another investment. An example of a hedge is using a Short option on the currency futures market to cover for a long position on the spot Forex market. The way the hedge is constructed is such that if the investment that is being hedged is successful, the losses from the hedging position will be far less than the profits from the hedged trade, and if the hedged trade ends in a loss, the hedge trade’s profits will outstrip the losses from the hedged trade.

By |2018-09-04T14:29:46+00:00September 4th, 2018|0 Comments

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