Okuzeka
Investing & the Stock Market vocabulary · Derivatives

Hedge

Meaning in investing & the stock market, with examples

/hedʒ/verbCommon term

In investing & the stock market, hedge means: To reduce the risk of losing money on an investment or business exposure by taking an opposite position, often with derivatives such as futures or options.

In Turkish: riskten korunmak, hedge etmek, riski dengelemek

How it is used

Used as a verb and a noun. Companies hedge currency or commodity risk; investors hedge a portfolio or hedge against inflation. 'Gold is a hedge against inflation' is a common phrase. A hedge costs money and limits gains as well as losses.

Example sentences

  1. The exporter hedges about half of its dollar income with forward contracts.

  2. Many investors hold gold to hedge against currency weakness.

Common collocations

  • hedge against inflation
  • hedge currency risk
  • hedge a position
  • natural hedge
  • hedging strategy
  • derivativeA financial contract whose value depends on the price of something else, such as a share, an index, a currency, an interest rate or a commodity.
  • put optionAn option that gives the buyer the right to sell an asset at a fixed price, the strike price, until or on a set date. Its value usually rises when the asset's price falls.
  • futures contractA standard contract traded on an exchange that obliges the buyer and seller to trade an asset at a fixed price on a future date. Both sides must keep a margin deposit.
  • diversificationSpreading money across different investments, sectors, countries or asset classes so that a loss in one of them has a smaller effect on the whole portfolio.
  • hedge fundA privately managed investment fund for wealthy or professional investors that can use flexible strategies such as short selling, leverage and derivatives.

This word in other fields

The same English word can have a different meaning in another field:

More terms: Derivatives

Practise with graded reading

Reading at the right level is the fastest way to make new words stick. Pick free English books by level:

This page explains English vocabulary for learners. It is not financial advice.