Also found in: Dictionary, Thesaurus, Financial, Idioms, Wikipedia.
Related to hedging: hedging bets, Currency Hedging


in commerce, method by which traders use two counterbalancing investment strategies so as to minimize any losses caused by price fluctuations. It is generally used by traders on the commodities marketcommodity market,
organized traders' exchange in which standardized, graded products are bought and sold. Worldwide, there are more than 20 major commodity exchanges and many smaller ones that trade commodities, ranging from grains and beans, coffee, tea, and cocoa, and cotton
..... Click the link for more information.
. Typically, hedging involves a trader contracting to buy or sell one particular good at the time of the contract and also to buy or sell the same (or similar) commodity at a later date. In a simple example, a miller may buy wheat that is to be converted into flour. At the same time, the miller will contract to sell an equal amount of wheat, which the miller does not presently own, to another trader. The miller agrees to deliver the second lot of wheat at the time the flour is ready for market and at the price current at the time of the agreement. If the price of wheat declines during the period between the miller's purchase of the grain and the flour's entrance onto the market, there will also be a resulting drop in the price of flour. That loss must be sustained by the miller. However, since the miller has a contract to sell wheat at the older, higher price, the miller makes up for this loss on the flour sale by the gain on the wheat sale. Hedging is also employed by stock and bond traders, export-import traders, and some manufacturers. See also hedge fundhedge fund,
in finance, a largely unregulated investment device with a relatively small number of investors that aims to outperform the markets. Originating in the 1950s, the funds "hedge" by offsetting "short" positions (borrowing a security and then selling it at a higher
..... Click the link for more information.



in capitalist countries, a method of insuring prices and profits by selling or buying futures—that is, contracts to deliver or receive commodities at a future time—in commodity markets. Since fluctuations in the market prices of commodities and the prices of futures tend to offset one another, hedging protects the capitalist, to a certain degree, against losses resulting from price changes on the commodity market.

References in periodicals archive ?
That said, Gary has won plenty of awards for his hedging skills, including national champion hedge layer three times over.
Additionally, for many hedging situations, hedge accounting serves to mitigate income volatility that would otherwise result in the absence of hedge accounting, and lesser volatility is generally seen as preferable.
We believe this topic of hedging costs and hedge-adjusted yields will be an important topic, and is something we are monitoring closely, but it's also important to recognise the uncertainty around how hedging costs develop.
Cowan compared that to a company hedging interest rates, which can borrow at a rate based on Libor and then hedge that Libor exposure.
Finally, and of special interest in this paper, there is a problem with hedging that result from competing against rivals within the context of an oligopoly.
This includes 80% of companies that use derivatives to manage interest rate risk, 66% with active currency risk hedging programs, and 60% that use derivatives to hedge commodity risk.
As business has become more global and the perils of leaving major currency positions unhedged have grown ominous, treasury pros like Edgeworth are searching for hedging solutions that provide the right balance of automation, outsourcing and personal attention.
Under a fair value hedge, the gain/loss in re-measuring the hedging instrument is recognised in profit and loss, along with the gain or loss on the hedged item.
[check] ACKNOWLEDGE that the concept of hedging implies a reduction of risk, not an increase of risk, which is an all-too-common assumption.
The practice of hedging began centuries ago when Japanese farmers sold and consumers bought rice for the next harvest before it took place.
The timing effects of hedging transactions, even with improper identification procedures, should also be considered.