0
0
0
0
1
2
3
$0
An investment made to reduce the risk of another one.
A hedge is an investment made to reduce the risk of another one, like insurance. If your main position loses money, the hedge is meant to gain and soften the blow. Hedges usually have a cost.
An investor holding many stocks might buy gold or put options, which tend to rise when stocks fall.
Hedging limits losses but also limits gains. Understanding it helps you see why big investors buy some assets even when they don't expect them to rise.