Hedging
Co-Founder•1 min read
Hedging is a risk management strategy used to protect against potential financial losses caused by adverse movements in markets — such as currency, interest rates, or commodity prices.
It involves taking an offsetting position (through forwards, options, or swaps) that gains value if the original exposure loses value, effectively stabilising overall outcomes.
Example:
A UK importer expects to pay €500,000 in three months. To hedge against the euro strengthening, they agree a forward contract today to lock in the exchange rate — protecting their GBP cost regardless of market changes.
Used in:
FX risk management, treasury operations, investment portfolios, and corporate finance planning.