Offsetting exposure (risk) to one side with a matching position on the other side.
For example, if you were to buy (“long”) an asset you could hedge your risk by shorting that same asset and squaring your exposure. In doing so you, would equally profit and lose regardless of where the price moves. Hence, your total equity would remain unchanged.
Hedging is difficult and complicated, however when done correctly it can majorly offset your risk.Back to Glossary