In finance, what does it mean to hedge?
AnswerTake a position that offsets possible losses
A hedge reduces exposure to an adverse price move.
Money · Facts & stats
Hedge facts & stats
7 fact-checked facts about hedging, risk management and hedge fund basics, each with the reason behind it. 5 more are in today's round and join this page after it closes.
The basics
What does the everyday phrase 'hedge your bets' mean?
AnswerReduce risk by backing more than one outcome
It means protecting yourself against being wrong.
Going deeper
What does a put option give its holder?
AnswerThe right to sell at a set price
A put can protect against a price drop.
What does a call option give its holder?
AnswerThe right to buy at a set price
Calls benefit if the underlying price rises.
Why might a wheat farmer sell wheat futures before harvest?
AnswerTo lock in a price and reduce price risk
Hedging protects the farmer if prices fall before harvest.
Expert level
Who is widely credited with starting the first hedge fund in 1949?
AnswerAlfred Winslow Jones
Jones combined long and short positions to hedge market risk.
Which hedge fund's near-collapse in 1998 led to a Federal Reserve-organized rescue?
AnswerLong-Term Capital Management
LTCM was recapitalized by a group of banks in 1998.
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