Hedging is the practice of opening multiple positions at the same time in order to protect your portfolio from volatility or uncertainty within the financial markets. This involves offsetting losses on one position with gains from the other.
Typically, the aim of financial hedging is to take a position on two different financial instruments that have an opposing correlation with each other. This means that if one instrument declines in value, the other is likely to increase, which can help to offset any risk from the declining position with a profit. These investment decisions should not be rushed and require a lot of thought and analysis beforehand.
Financial hedging is perhaps more common amongst short-term and medium-term traders, as market volatility tends to last for limited periods of time and these traders aim to take advantage of rapid price fluctuations. Long-term position traders are less likely to take into account recent changes within the market and instead, they more often open positions based on their predictions for the long-term future.