Hedging is a type of insurance against adverse events that does not prevent them, but limits their consequences. Hedging against investment risk is the use of various financial instruments (stocks, raw materials, interest rates, currencies, etc.) to avoid losses from negative price movements. In many cases, hedging uses financial instruments, etc. derivatives, the most common being options and futures. Through them, the loss of the main investment is covered by the profit of the derivatives.
In the area of finance, hedging is an additional investment designed to reduce the risk of another investment. This is a way to reduce business risks while making investment gains.
