VATFIN6400 | Financial derivatives: hedging
From HM Revenue & Customs · VAT Finance Manual
Hedging is a method of protecting against a financial risk arising from price fluctuations. For example, when a trader has bought but not sold contracts for commodities or financial instruments he holds an open position. The risk can be hedged by buying an equal and opposite futures contract (i.e. to sell), which offers some (but not complete) protection against the vulnerability of an open position.