Hedge Ratio
A hedge ratio compares a hedge's size or sensitivity with the exposure it is intended to offset and helps determine position size.
Hedge-ratio and long-hedge concepts used to size and interpret derivative positions that offset a defined exposure.
Hedging transactions and ratios connect a derivative position to the exposure it is intended to offset. This section focuses on two distinct mechanics: how much hedge is used and whether the hedge protects against a future price increase.
For the broader definition, instrument comparison, worked examples, and risk checklist, use Hedging.
| Article | Use it for |
|---|---|
| Hedge Ratio | Comparing the hedge’s size or sensitivity with the measured exposure |
| Long Hedge | Protecting a future purchase or other exposure against a price increase |
A matched notional amount is not proof of an effective hedge. Different sensitivities, dates, locations, grades, currencies, or contract terms can leave substantial residual risk.
This section provides general derivatives education. It does not recommend a hedge, position size, derivative, or trading strategy.
Choose a subsection first. Deeper term pages live inside each subsection, which keeps large topic hubs readable.
A hedge ratio compares a hedge's size or sensitivity with the exposure it is intended to offset and helps determine position size.
A long hedge buys futures or another derivative to reduce the risk that an asset, input, or currency will cost more when purchased later.