Hedge Definition

An investment position taken in order to protect oneself from the risk of an unfavorable price move in a security. This can be accomplished by taking an offsetting position in a security that is already owned. For example if an investor owned stock in XYZ, the investor might sell short the same number of shares in XYZ in order to hedge his position. This technique is often used when an investor is unsure of which way the market price of a stock will go.