Hedging

Hedging means protecting an investment against loss caused by fluctuations of prices in the market. It also means to counter balance the risk of loss with other transactions. Dealers in stock make future contracts, based on forecast, to make profit. In case of wrong forecast, the dealers wish to transfer some part of the loss to the shoulders of others by making another contract with them. This process of risk transferring through additional contracts is called ‘Hedging’.