Hedging

finance/foreign exchange

A type of economic insurance used by dealers in commodities, foreign exchange and securities, manufacturers, and other producers to prevent loss due to price fluctuations. Hedging consists of counterbalancing a present sale or purchase by a purchase or sale of a similar commodity or of a different commodity, usually for delivery at some future date. The desired result is that the profit or loss on a current sale or purchase be offset by the loss or profit on the future purchase or sale.

See arbitrage; delta hedging.

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