Learn More About Money Management
In other financial markets, creating a hedge can be done with call options, put options, by short-selling, or using futures contracts. The strategy always aims to reduce risk: by buying or selling the market, an investor bets that the price of the purchased security will move in a certain direction.
In order to offset the risk of losing money if the price moves in the opposite direction, an investor hedges against this risk employing a strategy that minimizes this risk of loss. A hedge can also be used to lock in profits or prices, for example, when an importer of sugar or manufacturer of that commodity sells futures contracts to offset losses if prices fall.