Series 53: Hedging

Hedging

Unlike position trading, hedging strategies are made, not to increase income, but to reduce risk. More specifically, a hedge is an investment made in order to reduce the risk of an adverse price movement in a security by taking an offsetting position in a related security. A common way of hedging the interest rate risk of a municipal bond is to short a Treasury bond. To short a security means to sell something you do not own. U.S. Treasury bonds are among the most liquid and continuously trad