What is hedge?Hedge
An opposite trade that offsets the risk of an existing exposure.
Animation · hedge
Learn “hedge” in an animated lesson
- Futures BasicsHedgers and Speculators
Selling the same wheat future, a farmer with wheat is "buying insurance" while a trader without wheat is "placing a bet". The basis decides how precisely a hedge locks in the price.
- Futures BasicsWhat Are Futures?
A farmer and a bakery agree today on the price of wheat in 3 months. That's a futures contract: a standardized agreement to buy or sell at a fixed price in the future.
- Hedging StrategiesWhat Is Hedging?
A farmer has a silo of wheat and fears prices falling before the harvest. Sell a futures contract, and the gains and losses on the two legs cancel out.
- Interest Rates & SwapsCross-Currency Swaps
One company has dollars and needs euros; another is the opposite. A cross-currency swap lets them exchange principal and interest, then swap back at maturity.
- Interest Rates & SwapsForward Rate Agreements (FRAs)
Lock in today the rate you'll borrow at 6 months from now. If rates rise, the FRA makes up the difference.
- Interest Rates & SwapsHedging a Floating-Rate Loan with a Swap
A company has a floating-rate loan and fears rising rates? Add a "pay fixed, receive floating" swap and the cost is locked in as fixed.
Related terms
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