hedging

Vocabulary Word

Definition

'Hedging' is a tactic to reduce or control risk. It's like wearing a helmet when riding a bike, the helmet reduces your risk of a head injury in case of an accident. In finance, it means making an investment to reduce the risk associated with adverse price movements in an asset.

Examples in Different Contexts

In investment management, 'hedging' is a fundamental practice. An investment manager might say, 'Implementing effective hedging strategies is crucial to mitigate risks associated with market volatility and protect our investment portfolio from significant losses.'

Practice Scenarios

Tech

Scenario:

There's always a risk when adopting new technology platforms, we must carefully consider the advantages but also potential pitfalls.

Response:

Right, hedging our technology risk by investing in both proven technologies and new innovations seems to be a prudent approach.

Business

Scenario:

As we expand our supply chain, we need to think about how we might be exposed to fluctuations in commodity prices.

Response:

Absolutely, we could hedge by diversifying our suppliers, reducing the risk of a sudden price rise in commodities.