What are the different types of Hedging? Had someone asked me this question a few years back, I would have said, “Hedging is Hedging what’s there to bifurcate?”
But, over the period of the last few years, this term has predominantly added a couple of facets. I will keep the nomenclature the same as that of other asset classes so that it is easy to understand.
The definition along with its key benefits will help us realize depending upon the state of market trend and our own profile which one suits us best and when.
Two key types of Heding are Passive vs Active. While Passive hedging focuses on eliminating the risk, Active hedging focuses on the dual objective of reducing the risk at the same time generating some returns.