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Definition: Hedge

Hedge is an investment that is undertaken to offset or reduce the losses that a company or individual can suffer due to the risk resulting from market price fluctuations of another asset that has been invested in.

Hedge investments are done when one is not sure of what will happen in the market in the future.

In case a stock has been bought in a market, an example of hedge can be to sell a futures contract stating that a stock will be sold at a pre-decided price. Thus, the risk of market price fluctuations in the invested stock is reduced.


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