What does hedging aim to achieve in an investment strategy?

Hedging is a risk management strategy used in investing that aims primarily to offset potential losses in an investment. By employing various financial instruments, such as options or futures contracts, an investor can protect their portfolio from adverse price movements. This means that if the value of a primary investment decreases, the gains from the hedge can help reduce the overall losses.

The focus of hedging is not on maximizing profits or enhancing market volatility; rather, it serves to provide a safety net against unforeseen market changes. Furthermore, while hedging can significantly reduce risk exposure, it does not eliminate all risks entirely. There will always be some degree of uncertainty in the markets, and hedging strategies are designed to mitigate rather than completely remove risk.