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Hedge

HEJ /hɛdʒ/

verbnounC1GMATGRE

formalbusiness

(verb) To protect oneself against financial loss or other adverse circumstances; (noun) an investment made with the aim of offsetting potential losses from another investment.

Implies a defensive strategy to reduce risk, not necessarily to maximize profit. It's about limiting downside, often at the cost of limiting upside.

The story behind the word. The word 'hedge' comes from Old English hecg, meaning 'a fence' or 'enclosure.' This literal sense of a protective barrier around a field evolved into the figurative meaning of protecting or enclosing oneself from risk. By the late 17th century, it was used to mean 'to guard against loss,' and by the 18th century, it specifically referred to financial protection, like 'hedging one's bets' to reduce potential losses.

Word relationships

Protect: General term for keeping safe; 'hedge' is specific to financial or strategic protection against adverse movements.
Safeguard: A measure taken to protect something or someone.
Offset: To counteract or compensate for something.

Expose: To leave open to danger or harm.
Gamble: To take risky action in the hope of a desired result.

Commonly confused with

Speculate: 'Hedge' is a defensive strategy to reduce risk. 'Speculate' is an offensive strategy to seek high returns, often by taking on high risk.

Word family

Hedging (noun): The act of protecting oneself against financial loss or other adverse circumstances.
Hedge fund (noun): A limited partnership of investors that uses high-risk methods, such as investing with borrowed money, in hopes of realizing large capital gains.

Collocations

hedge against
hedge fund
currency hedge
interest rate hedge
hedge one's bets

Idioms & expressions

hedge one's bets

Example sentences

"Many farmers hedge against falling crop prices by selling futures contracts before harvest." Financial strategy
"To hedge against inflation, some investors put a portion of their portfolio into real estate or gold." Risk management
"When asked about the election outcome, the politician hedged his bets, refusing to make a definitive prediction." General caution

Memory hook

Think of a garden HEDGE as a protective barrier. To HEDGE financially is to create a protective barrier around your investments. HEDGE is a protective barrier.

When not to use

Do not use 'hedge' when describing a strategy aimed solely at maximizing profits without considering risk reduction. It's also not appropriate for strategies that increase overall risk.

Fun facts

The term 'hedge fund' refers to investment funds that use various strategies, including hedging, to generate high returns, often involving significant risk.

Related words

Mitigate, Risk, Diversify

Explore more words

Hedging, Derivative, diversification, protect, offset, mitigate