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Hedging

Hedging is an investment strategy, and it helps people identify the risks of investing. When someone hedges, they try to reduce potential losses from an investment. They can do this by offsetting. That means investing in another investment to balance out their original investment. Say someone buys stocks in a software company. That person might hedge this investment by also betting against it. In this scenario, the investor can make a profit, even if stock prices for the software company go down. Hedging is a common risk management strategy. However, sometimes this strategy reduces potential profits, because the investor is essentially betting against their original investment.

What Small and Midsize Businesses Need to Know About Hedging

SMBs can use hedging to shield themselves from potential losses that might arise from an investment. These businesses typically have fewer investment resources than larger companies and can't afford to take huge risks on the stock market.

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