HedgeBack to Glossary
To hedge is to reduce your exposure to financial risk by using derivative instruments such as futures, forwards or by investing in an asset or instrument that is inversely correlated or uncorrelated with the rest of your portfolio. The latter strategy is known as a natural hedge as it does not require the use of complex instruments. Why would you want to buy something that does the opposite of your other holdings? Precisely because doing so will reduce your downside risk as part of your portfolio will be moving in the opposite direction should everything else be falling in value.
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