Anticipatory Hedge

Posted in Finance, Accounting and Economics Terms, Total Reads: 1089
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Definition: Anticipatory Hedge

An investor, who enters the market and wants to reduce the risks, may lock an asset for certain price before actually a transaction occurs. Typically it involves taking a long position, but could also be small. This is Anticipatory Hedge.


Thus it protects the investor from unfavourable movement in the price of an asset.

• Long Anticipatory Hedge - This is appropriate option when the trader is sure he will purchase the asset in future and wants to lock the price.

• Short Anticipatory hedge - This is appropriate option when the trader is sure he will sell the asset in future and wants to lock the price.


For example: someone exports wheat from India to The United States. On successful delivery he will be paid in dollars but it will take a lot of time in shipping. During this time, the farmer fears that there is a possibility that dollar price reduces as compared to Rupees. In such a situation, he may take a short call on dollar and hedge the anticipated decline. Its an anticipatory hedge as the farmer is calling a hedge strategy on a commodity, here dollar, which he does not possess yet.


In anticipatory hedging, the trader may execute a partial or complete hedge prior to the actual transaction. This reduces the risk by shifting market impact to participant involved in security.


Hence, this concludes the definition of Anticipatory Hedge along with its overview.

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