Definition of HEDGE: Understanding the concept of hedge in private equity

Hedging is an investment concept designed to protect portfolios against market volatility. This is done by taking parallel (or offset) positions, which are transactions that cancel each other out, and serve to limit risk. In this way, a degree of stability and predictability can be guaranteed, provided the markets are closely observed and the slightest change in direction is acted upon.

The term "hedge" can also refer to a fund specializing in this type of investment. Hedge funds are forms of forward investment, and there are several different types of strategy:short-term, arbitrage and option trading. Hedging is also often referred to as active management, meaning that asset managers make decisions based on market trends and their own analyses.

This strategy can also be integrated into more diversified portfolios to enhance performance and minimize risk. Overall, hedging can be seen as a particularly effective way of limiting market exposure and protecting against market and currency instability.