Glossary term

Hedging

Taking an offsetting position to reduce a specific risk.

A hedge is meant to remove or reduce unwanted exposure. For example, a stock picker may hedge market risk so performance depends more on which stocks were chosen than whether the whole market rose.

Example: Owning selected stocks while shorting an index ETF is one way to hedge broad market exposure.

Where this appears

Why retail investors can now compete with hedge funds Why buying SPY alone is not enough