Hedging
From Open Risk Manual
Definition
Hedging is the practice of entering into an offsetting position (hedge) intended to offset potential losses/gains that may be incurred by a physical position in or exposure to commodities or financial assets.
A hedge is used to reduce the potential for any substantial Unexpected Loss (or gains) suffered by an individual or an organisation. Hedges are typically taken out in the form of exchange-traded futures contracts and options, or similar transactions in the over-the-counter market. Where an entity has an offsetting position within its own operations, this can be said to create a ‘natural’ hedge
