PDSnet Glossary

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Definition

Action taken by an investor or speculator to protect his business or assets against a change in prices. For example, if an investor holds a large number of listed securities in a particular company which are not readily traded on the JSE and he is apprehensive as to the possibility of a sharp decline in the price of such securities, he can buy a 'put option' to sell them at today's price, which for a fraction of their current value will protect him if the price does fall. The problem is that when you hedge out the downside on an investment, you also hedge out the upside.

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