A Hedge is an investment that is made with the intention of reducing the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting or opposite position in a related security. For example, if you are worried about the stock market going down, you might buy some put options as a hedge.While hedges can be useful in mitigating risk, they are not without their drawbacks. First and foremost amongst these is the fact that hedges can be costly to set up and maintain. Additionally, hedges can sometimes have unintended consequences; for instance, if the stock market goes down as you feared but then recovers quickly, your hedge may have cost you more than it was worth.All things considered then, whether or not to use hedging as part of your investment strategy is something that requires careful thought and analysis on a case-by-case basis.
