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(1) Among professional traders and position managers, a position or combination of positions taken to profit from an expected change in a spread or relative value; basis arbitrage. See also Basis (1). (2) In popular usage, a position or combination of positions which reduces some type of risk, usually at the expense of expected reward. Risk hedging is typically accomplished by making approximately offsetting transactions that will largely eliminate one or more types of risk. (3) In the narrower sense, the term often indicates partially offsetting a long position in one security with a short or short equivalent position in a related security. See also Long Hedge, Option Hedge, Reverse Option Hedge, Spread (5).
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