A hedge is a financial strategy employed by investors or businesses to protect themselves from potential losses resulting from unfavorable changes in market conditions. By using hedging, an investor might counteract potential losses in one investment by taking a position in another investment that would gain value if the originally anticipated risks materialize.

For example, a company expecting to receive payments in a foreign currency may hedge against currency exchange rate fluctuations by locking in the current rate through a forward contract. This allows the company to focus on its core business rather than worrying about adverse effects caused by currency volatility.

Hedging is a common practice across industries and within financial markets, where various instruments such as options, futures, and foreign exchange contracts are utilized to manage or limit exposure to specific asset classes, risks, or market conditions. Its purpose is not to make a profit but rather to mitigate potential losses.