Hedging a transaction that is expected to be made on a future date using futures contracts. In other words, it is an investment made or a position taken to reduce or mitigate the risks associated with another investment or position expected to be made or taken in the future. When a long position is taken in futures contracts in order to lock in a price at the futures price quoted today, the anticipatory hedge is said to be long.
Similarly, by taking a short position in futures in order to lock in a price at the futures spot price today, the hedge is labeled “short”.
Comments