Hedge is creating an investment to decrease the risk of adverse price movements in an asset. Generally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.
An illustration of a hedge would be if you owned a stock asset , then sold a futures contract stating that you will sell your stock at a set price, therefore preventing market fluctuations.
Trader use this plan when they are unsure of what the market will do. An ideal hedge reduces your risk to nothing (except for the cost of the hedge).
