Buying Hedge

Not a garden purchase.

The buying of a hedge is "life insurance for a security investment." A buying hedge is a purchase contract to buy a derivative of an asset, locking in the price.

It can take a few forms. One could be a futures contract. This contract binds the two parties to either buy or sell the shares at a specific price at a specific time in the future. The contract can be held (and designed) by either the buyer or seller. Agreements like this can be used if an investor thinks they’ll want an asset in the future, and they want to lock in the price today. It could be done by a business as well, if it anticipates having too much of a resource in the future, and wants to get rid of it at today’s nice price.

Say you’re an investor, and a certain technology looks promising. The latest gadget trend, the latest app craze (Pokemon Go Away), etc. Problem is...you don’t have the money right this second. This agreement lets you specify a purchase agreement with that company in the future (when you have the money...you hope). They sell their shares and make money, you get a piece of the investment you want. Everyone wins.