Business and Personal Finance Dictionary

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• HEDGE
  
  1. Verb— To reduce risk or behavior that reduces risk from future price movements. 2. Noun — A transaction undertaken to reduce risk by offsetting the risk in another transaction. The risk in one position is hedged by counterbalancing it with the risk in another transaction. The values of each position must change inversely and with a high degree of correlation. Hedges may be cash to cash in which a position in a cash instrument such as a loan or investment reduces or offsets the risk in another cash position such as a deposit. For example, a $1,000,000 investment in a U.S. Treasury bond maturing in 10 years and a $1,000,000 certificate of deposit are largely (but not completely) offsetting risks. Hedges may also be cash to futures or futures to futures.
  
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