Definition
Hedging is a financial concept used to reduce the impact of price movements on an existing position or portfolio. In trading, it involves taking a new position that is expected to move in the opposite direction of a current holding, so that losses in one are partially or fully balanced by gains in the other. The goal of hedging is not to generate extra profit, but to limit downside risk and make overall results more predictable.
In crypto markets, hedging can apply to exposure in individual coins, tokens, or broader market movements. It is commonly associated with traders and investors who want to stay in a position while reducing the potential damage from sudden volatility. As a concept, hedging focuses on managing uncertainty rather than trying to time every market move.
In Simple Terms
Hedging means setting up a kind of financial safety net for an existing investment. When someone is worried that the price of an asset might move against them, they create another position that is meant to soften the blow if that happens. If the original investment loses value, the hedge is designed to gain value and help balance the overall result.
This approach is about protection more than about chasing the highest possible return. By using hedging, traders accept that they might give up some potential profit in exchange for more stability and smaller possible losses. It is a basic way to manage risk in markets that can move quickly and unpredictably.