Hedge

Hedging is a risk management strategy used to reduce or offset the probability of loss from fluctuations in prices. Traders hedge by taking an offsetting position in a related security, such as buying put options to protect long stock positions or shorting futures to protect against commodity price declines. While hedging reduces potential losses, it also typically reduces potential gains. Common hedging instruments include options, futures, and inverse ETFs. Professional traders and institutions use hedging to protect portfolios while maintaining exposure to potential upside.