An economic hedge is a financial approach aiming to minimize risks associated with changes in market variables, such as currency exchange rates, interest rates, or commodity prices, that could affect business performance or asset values. Unlike an accounting hedge, which focuses on financial reporting, an economic hedge concentrates on actual risk reduction measures without necessarily being accounted as a hedge under accounting standards.

For example, a company with foreign currency exposure might use forward contracts to lock in exchange rates, protecting against adverse currency movements. Similarly, purchasing commodity futures is a hedging method to stabilize raw material costs. These practices ensure that the core operations are not significantly impacted by macroeconomic uncertainties, thereby achieving greater financial predictability and security.

Economic hedging can involve derivative instruments, natural offsets, or operational strategies, depending on the nature of the exposure and the entity's objectives.