Hedging refers to the investment strategy that is used to mitigate the risks during adverse price movements for a given asset. Predominantly hedging is done on the opposite position for any given security. One of the biggest setbacks for hedging is the risk-reward tradeoff that comes with it.

With the intent of reducing risks, hedging also takes away any potential gains. In other words, hedging always comes at the cost of any asset or another. As a perfect hedge, it can mitigate any scope of risk whatsoever from the portfolio or position.