Hedging

Hedging is a strategy used to reduce risk or protect against potential losses in investments, contracts, or financial transactions. It involves taking an offsetting position in an asset or using financial instruments, like options or futures, to counterbalance potential negative outcomes. For example, a farmer might hedge against falling crop prices by selling futures contracts, ensuring a guaranteed price regardless of market fluctuations. By hedging, individuals and businesses can manage uncertainty and mitigate the impact of adverse events, helping to stabilize their financial position.