Business Term to Know: Hedging

Hedging is done to offset losses or gains possibly sustained by a person or organization. It can be constructed by various financial assets including stocks, funds, insurance, or futures contracts. This is often done by businesses in an uncertain stock market. An organization or individual will buy a stock and promise through a futures contract to sell it at a set price in order to avoid possible negative fluctuations in the market. Aside from the cost of the hedge, there is no money lost when a hedge is perfectly constructed.