Trading glossaryReviewed 16 July 2026
Definition
Hedging uses an offsetting position or instrument to reduce sensitivity to a specified risk, usually in exchange for cost or reduced upside.
In market context
A hedge should identify the exposure being reduced, its size, duration, basis, and conditions under which the offset may fail. Imperfect correlation, timing differences, liquidity, financing, and transaction costs can leave residual risk or create new risks. Hedging is not the same as eliminating loss, and an oversized or poorly matched hedge can become a separate speculative position under stress.
Source
Use the primary source for fuller regulatory or market context.