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hedging is one of those topics that many accountants feel is complex confusing and dare I say scary but it doesnt have to be as scary as you might expect take a deep breath and lets break down this complex topic to help you further understand hedging lets start with what is hedging hedging is merely mitigating risk one of the simplistic examples of mitigating risk that we can all relate to is insurance if you own a house it is a big investment right if your house burns down that could be catastrophic to you now you never know whether that event will ever happen but you buy insurance to reduce your risk just in case so buying homeowners insurance is essentially your way of hedging the risk of damage to your investment in your home it is similar for companies companies are exposed to a variety of risks which they monitor and may choose to manage or economically hedge usually through the use of derivative instruments so that is a basic introduction to hedging of course it does get a b