Macro Hedge is an investment method designed to reduce or eliminate economic risk of an entire entity or portfolio.
- It involves making investment in a such a way that will offset the risk of an asset, or a group of assets, in a portfolio.
- Macro investors are investors that have investment interest in international markets. They can use a macro hedge to balance their portfolio in times of international economic downturn.
Buying and selling a combination of stock i.e short term and long term can reduce the risk a serious financial loss in the event of a market crash.
In respect to the foreign exchange market, changes in global economies, which can have substantial effects on currency movements. Thus, macro investors will anticipate such events and shifts and and thus offset their risk by investing in currencies whose prices are most directly influenced by these trends.Advertisement[Image credit : Flickr]
Micro Hedge is an investment method designed to reduce or eliminate the risk of a single asset or liability, as opposed to the risk arising from an entire portfolio. If this asset is part of a larger portfolio, the hedge will eliminate the risk of one asset but will have less of an effect on the risk associated with the portfolio. If the asset or liability is part of a large portfolio with a number of correlated risks, then micro-hedging is less likely to be an effective technique. opposite of macro-hedge.