Strategy
Hedge
A second position taken to reduce the risk of a first one, usually by backing the opposite outcome.
A trader holding Yes at 30 cents on a candidate who rallies to 70 cents can sell part of the position or buy No, locking in profit regardless of the result. Exchanges make this easy because you can trade out at any time; traditional futures bets cannot be sold.
Hedging costs expected value in exchange for lower variance. Whether that is worth it depends on bankroll and on whether you still believe the original price was wrong.
Cross-venue hedging, long on one exchange and short on another, is how arbitrageurs and market makers manage inventory.
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Frequently asked questions
- What does "Hedge" mean?
- A second position taken to reduce the risk of a first one, usually by backing the opposite outcome.
- Why does hedge matter for prediction markets?
- Cross-venue hedging, long on one exchange and short on another, is how arbitrageurs and market makers manage inventory.