Hedging

Hedging is an investment technique designed to offset a potential loss on one investment by purchasing a second investment that you expect to perform in the opposite way.

For example, you might sell short one stock, expecting its price to drop. At the same time, you might buy a call option on the same stock as insurance against a large increase in value.

Protecting the value of an investment or contractual commitment from loss due to price fluctuations by, for example, acquiring instruments whose price changes are expected to offset the loss.