Mitigating Uncertainty: A Literature Review on Hedging Risk and Asset Protection

In the ever-evolving world of finance, investment and asset management are a major focus for many individuals, companies, and financial institutions. Market uncertainty and associated risks such as market, credit, and liquidity risks can have a significant negative impact on investment returns. Therefore, a deep understanding of risk management is key to achieving financial success. Hedging is a strategic approach that aims to protect assets from price fluctuations or uncertain values in a rapidly changing market environment. This research aims to provide a comprehensive understanding of the concept of risk hedging, the mechanisms involved, as well as the various instruments used to overcome financial uncertainty. Using the literature review method, this study establishes a strong theoretical foundation on the topic of risk hedging and provides practical guidance for investors, companies, and individuals interested in managing risk and protecting their investments. The results show that hedging strategies, such as the use of futures contracts, options, swaps, diversification, and stop-loss orders, can be effective tools in risk management. However, this strategy also has its challenges and criticisms, including transaction costs and implementation complexity. Overall, this study emphasizes the importance of understanding and implementing hedging strategies in financial management to strike a balance between taking advantage of growth opportunities.