What are hedging strategies designed to do?

Hedging strategies are specifically designed to offset or reduce financial risk in investments. This concept revolves around the idea that investment markets are inherently volatile, and investors often seek to protect themselves from potential losses that may arise due to market fluctuations. By using various hedging techniques—such as options, futures, and other derivatives—investors can create positions that counterbalance potential negative movements in their primary investments. This allows them to manage and mitigate risk, ensuring that they are better protected against adverse market conditions.

The goal of hedging is not to eliminate risk entirely, as some level of risk is always present in investing, but to create a more stable investment profile. This enhances the investor's overall strategy by allowing them to pursue gains while also having a protective measure in place. The idea is rooted in prudent financial management, not in pursuing aggressive returns at any cost or increasing exposure through additional debt.