definitions Hedge

Hedge

Something that reduces the risk of future price movements. A position or operation that offsets an underlying exposure. For example, a forward currency hedge uses a forward currency contract to offset the exposure of an underlying position in a foreign currency. Hedges reduce the total variability of the combined position. To offset risk. In the foreign exchange market, hedgers use the forward market to cover a transaction or open position and thereby reduce exchange risk. The term applies most commonly to trade. To enter into a forward contract in order to protect the home currency value of foreign-currency-denominated assets or liabilities.