A Hedger is an investor or business entity that uses financial instruments, such as derivatives (futures, options, or forwards), to protect against the risk of adverse price movements in an underlying asset. The primary goal of a hedger is not to earn profit but to minimize potential losses arising from market volatility.

In the financial markets, hedgers are typically producers, exporters, importers, or institutional investors who have exposure to price fluctuations in commodities, currencies, or securities. For example, a farmer may hedge against the risk of falling crop prices by selling futures contracts, while an airline company might hedge against rising fuel costs by purchasing oil futures. Similarly, stock investors may use options to safeguard their portfolios from market downturns.

Hedging works by taking an offsetting position in the derivatives market that moves inversely to the actual exposure in the spot market. This way, any loss in the physical or cash market is compensated by gains in the derivative position, thereby stabilizing overall returns.

While hedging helps in reducing uncertainty, it also involves costs such as premiums or margin requirements, and it may limit potential gains. Therefore, effective hedging requires careful assessment of market conditions, risk tolerance, and the right choice of financial instruments.

In India, hedging activities are regulated by the Securities and Exchange Board of India (SEBI) and relevant exchanges to ensure transparency and prevent speculative misuse. Overall, hedgers play a crucial role in enhancing market stability by transferring risk from those seeking protection to those willing to assume it, such as speculators or arbitrageurs.