Hedging Price Risk

There can be instances where an investor is looking to mitigate price risk for positions that are held but are not willing to reduce their current positions for a number of reasons. One way to handle this scenario is to hedge the risk exposure using another investment vehicle.

The hedging vehicle can be an instrument that is negatively correlated to the investment vehicle. For example a put option on the EUR/USD would increase in value at the exchange rate of the currency pair moved lower. There are a number of strategies that an investor can employ prior to market moving events which will mitigate their risk by hedging their price risk exposure.