Hedgingnoun

Locking in a future rate or price to reduce exposure to movement.

Hedging fixes a cost in advance — most often a currency rate through a forward contract, sometimes a commodity price — so the business is insulated from movement between committing and settling.

It buys certainty, not profit. A hedge that ends up worse than the spot rate has still done its job, and judging hedges with hindsight is how hedging policies get abandoned shortly before they were needed.

Also called