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Hedge

A hedge is a trade or transaction that diminishes risk in another area.

For example, a person who takes out a fixed-rate mortgage is attempting to hedge against future interest rate moves.

Interest rates might go up or down affecting this person's monthly outgoings in a positive or negative way. However, by accepting the terms of a fixed rate mortgage they hedge against future rate hikes. There is a risk they'll lose out on a rate decrease but they are prepared to live with this as the price of knowing their future outgoings.

Sometimes, when asked, people will say a hedge is "that thing that grows in your garden". This isn't a wildly funny observation and it is legal at this point to perform a violent act of topiary on the gagster.

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