Hedging

Hedging is nothing to do with gardening in the world of finance.

Rather hedging refers to a method that is used to try to reduce the possibility of a loss occurring when a market fluctuation goes differently to the way that you want it to go.

For instance, if you are heavily exposed to a particular currency, for instance having done a large trade in euros, then you will want to know that, whatever happens to the exchange rate, your money when converted back to pounds is safe. So if the pound goes up against the euro, then you have less in pounds when the euros are converted back, and vice versa, so you could hedge against the pound going up against the euro with a currency future.

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