A selling hedge is a risk management strategy used by investors or businesses to protect against a potential fall in the price of an asset they currently own or plan to sell. It involves taking an offsetting short position—typically through futures contracts or put options—on the same or closely correlated asset. For instance, an Indian equity fund manager holding a large portfolio of stocks may sell Nifty futures to hedge against a broad market decline without liquidating individual positions. A selling hedge effectively transfers downside price risk to a counterparty in the derivatives market, allowing the investor to retain the underlying asset while limiting losses.
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