# Hedging Hedging is transacting at a known price now to protect from having to transact at an unknown price later. Hedging is meant to reduce some potential gains by some known amount, $p$, while reducing potential loses by some amount, $l$, where $p < l$. It is similar to buying *insurance* against adverse price movements. Hedging is different than simply buying more or less of an asset. If you buy less of an asset, you reduce your exposure to both the up and downside by the same amount (proportional to the amount reduced). However, if you hedge via a put option, you keep the upside exposure (minus the small price of the put, $p$) and heavily mitigate the downside exposure. In this way hedging can be thought of as creating an **asymmetric** risk / reward profile. --- Date: 20230525 Links to: Tags: References: * []()