Hedge Contract

A hedge contract is any financial agreement taken out mainly to reduce the risk of loss on another position, rather than to make a profit on its own. Common examples are forward contracts, futures, options and swaps. A wheat farmer might sell futures to lock in a harvest price, an importer might buy a forward contract to fix the cost of foreign currency, and a crypto miner might sell bitcoin futures to protect against a price drop before mined coins are sold. In each case, losses on one side are expected to be offset by gains on the other. Early descriptions of Ethereum also used "hedging contract" for a smart contract in which two parties split the risk of ether's price moving against the dollar. Hedges have costs and can fail if the two positions do not move as expected. The wider practice is described under hedging.