Hedge (Hedging)
Taking offsetting positions to reduce or manage financial risk.
Detailed Description
Hedge (Hedging)
What is the primary goal of hedging?
The primary goal of hedging is to protect against unforeseen market fluctuations that could negatively impact the value of an investment.
What are some common instruments used in hedging?
Common instruments include derivatives like options and futures, exchange-traded funds (ETFs), and insurance products.
What is the difference between direct and cross hedging?
Direct hedging involves taking a position in the same asset being hedged, while cross hedging uses a correlated but different asset to offset risk.
What are the risks associated with hedging?
Risks include costs, over-hedging, complexity, and liquidity risk.
How does hedging apply to real estate investments?
In real estate, hedging can manage risks related to interest rate fluctuations, property values, and currency exchange rates.