what is hedging 
hedging is a strategy used to reduce financial exposure by taking the opposite position in a security one has invested in for example if you expect the price of oil to rise you will purchase oil futures go long however just in case oil prices fall you hedge your financial exposure by selling oil futures go short so if oil prices do fall and you were wrong you will lose money on your long oil futures but make money on your short oil futures reducing the money you lost the bottom lineinvestors must consistently manage risk and reward the higher the risk generally the upside potential is greater but so are the chances for losses understanding one s financial exposure when picking investments is critical to success investors can take actions to mitigate financial exposure such as through diversification and hedging ensuring that their losses are minimal 