(1) Verb- To reduce risk or behavior that reduces risk from future price movements.
(2) Noun - A transaction undertaken to reduce risk by offsetting the risk in another transaction. The risk in one position is hedged by counterbalancing it with the risk in another transaction. The values of each position must change inversely and with a high degree of correlation. Hedges may be cash to cash in which a position in a cash instrument such as a loan or investment reduces or offsets the risk in another cash position such as a deposit. For example, a $1,000,000 investment in a U.S. Treasury bond maturing in 10 years and a $1,000,000 certificate of deposit are largely (but not completely) offsetting risks. Hedges may also be cash to futures or futures to futures. American Banker Glossary
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The purchase or sale of a futures contract as a temporary substitute for a cash market transaction to be made at a later date. Usually involves simultaneous, opposite positions in the cash market and futures market. Chicago Mercantile Exchange Glossary
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A futures or options transaction motivated by the wish to reduce risk.
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The purchase or sale of options or futures contracts as a temporary substitute for a transaction to be made at a later date. Usually it involves opposite positions in the cash or futures or options market. Exchange Handbook Glossary
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A hedge is typically accomplished by making approximately offsetting transactions that will largely eliminate one or more types of risk. Hedging Investors can use derivatives and covered warrants to hedge investments. For instance, if an investor owns a particular stock, he or she can neutralize the impact of an impending fall in price by buying a put option, selling futures or buying a put warrant. London Stock Exchange Glossary
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▪ I. hedge hedge 1 [hedʒ] noun [countable] FINANCE
something that gives you protection against a financial risk, for example
futures (= agreements to buy or sell currencies etc on a fixed date in the future at a fixed price) or
option S (= rights to buy or sell currencies etc at a particular price within a particular period of time or on a particular date in the future):
• They decided that diesel fuel for the company's trucks would rise by at least 10 cents a gallon, and have done some forward buying as a hedge.
hedge against
• Investors often buy precious metals as a hedge against inflation.
[m0] ▪ II. hedge hedge 2 verb [intransitive, transitive]
1. FINANCE if you hedge a financial risk, you protect yourself against it, for example with
futures (= agreements to buy or sell currencies etc on a fixed date in the future at a fixed price) or
option S (= rights to buy or sell currencies etc at a particular price within a particular period of time or on a particular date in the future):
• I've never hedged currencies before. But I could see the dollar was getting lower, and I hedged for the first time, betting that the dollar would rise.
• Northwest Airlines saved more than $7 million in fuel costs because it hedged 4.2 million gallons of its fuel purchases for each month by buying futures contracts.
— hedging noun [uncountable] :
• Manufacturers have been doing more hedging because they expect prices for copper to rise.
• sophisticated currency hedging techniques
2. hedge your bets to reduce your chances of failure or loss by having several choices available to you:
• Promoters, uncertain whether losing weight was going to stay popular, hedged their bets by advertising that their products could help you add weight or reduce it.
hedge against something phrasal verb [transitive] FINANCE
if you hedge against, or hedge yourself against, a financial risk, you protect yourself against it by hedging:
• Consumers of a raw material can hedge against price movements through the futures markets.
• Many companies have not hedged themselves against a rising yen.
• Although invested in Europe, they weren't sufficiently hedged against currency changes.
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Ⅰ.
hedge UK US /hedʒ/ noun [C] FINANCE, STOCK MARKET
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These formulas are devised to tell the bank what kind of hedges to purchase to provide the best possible protection of its assets.
a hedge against sth »
In recent years, investors have also bought gold as a hedge against US dollar weakness.
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inflation hedges
Ⅱ.
hedge UK US /hedʒ/ verb [I or T]
► FINANCE,
STOCK MARKET »
European airports have been attracting investors keen to hedge long-term pension liabilities.
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We don't tend to hedge at all - in either stock or bond funds.
hedge against sth »
Companies can hedge against currency movements, but many choose not to.
hedge risk/exposure »
Airbus has hedged enough of its dollar exposure that a major short-term impact is unlikely.