Hedging Law and Legal Definition

Hedging is a risk management strategy used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities. It is a transaction by which one who has made a contract for the sale or purchase of a commodity, protects him/her against loss through a fluctuation in the market by making a counter contract for purchase or sale of an equal quantity of the commodity. It is generally recognized as a legitimate and useful method of insuring against losses on contracts for future delivery.