Futures & options
What is Hedging?
Hinglish mein padhein: Hedging kya hoti hai?
Hedging is taking an offsetting position — for example buying a Nifty put — to reduce the risk of losses in an existing portfolio.
A hedge costs money (the option premium) in exchange for protection, much like insurance.
Hedges rarely match a portfolio perfectly; the mismatch is called basis risk.
Related terms
- Options (call and put)An option gives the buyer the right, but not the obligation, to buy (call) or sell (put) at a strike price before expiry. The seller takes the obligation.
- FuturesA futures contract is an agreement to buy or sell an asset at a set price on a future date. Both sides are obliged to settle.
- BetaBeta measures how much a stock tends to move relative to the market. A beta of 1.2 means it has moved about 20% more than the index on average.