Quick answer
Hedging: Hedging is taking an offsetting position to reduce the risk of an existing one, accepting a smaller possible gain in exchange for a smaller possible loss.
Also called: hedge, laying off
Explained, with an example
The CFTC glossary describes hedging as using offsetting contracts to protect against adverse price moves [1]. In event markets the same idea applies: if you hold Yes at 0.40 and the price rises to 0.70, selling (or buying No) locks in part of the gain regardless of the result. A full hedge at better combined prices than 100% is effectively an Arbitrage.
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Frequently asked questions
What is hedging?
Hedging is taking an offsetting position to reduce the risk of an existing one, accepting a smaller possible gain in exchange for a smaller possible loss.
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Author: Ken Lin · Corrections: if you spot an error, we review it and date-stamp the fix.
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Sources
- CFTC Glossary (binary option, DCM, order book, liquid market, market maker, settlement, wash trading, arbitrage, hedging) — U.S. CFTC, accessed 2 Nov 2026