Cryptopedia
Hedging Transactions
As a trading method, hedging transaction follows the principle of "market neutrality". It regards a specific position as a financial vector, and the direction of the vector is exposure. Hedging transaction is to manage exposure through financial instruments in different directions, usually matching the exposure (arbitrage) by matching the position to realize the absolute return under risk exposure management.
It is mainly to find the arbitrage space formed by the efficiency gap between markets or commodities. Through two or more transactions, it uses the hedging mechanism to avoid risks and minimize market risks. For example, taking the use of stock index futures for hedging trading as an example, when the risk is generally high, traders buy spot and short stock index futures, so that they can not lose or earn at high risk, which effectively resolves the risk.