Hedging, or better explained as "safeguarding," is a strategy that is often not well understood and is executed even worse. Its purpose is simply to reduce the inherent risk in certain financial activities. In simple terms, hedging involves taking a second position opposite to the first position taken in a market to minimize the effect of adverse price movements.If done correctly, hedging is an effective way to protect the value of an investment and minimize its downside. While it's not exactly an insurance policy, when done correctly, it should yield the same result: a decrease in risk, with a corresponding improvement in the investor's ability to sleep well at night.Unfortunately, in many parts of the world, hedging is hardly known, and, what is even worse, it is implemented with ineffective instruments, leading to a waste of expenses and high operating costs.
