For instance, you can invest 40% in the equities market and the rest in stable asset classes. Asset Allocations: This is done by diversifying an investor’s portfolio with various classes of assets.The AMCs generally employ the following hedging strategies to mitigate losses: This includes various contracts such as covered calls on equities, money market operations for interest, and currencies. Money Markets: These are the markets where short-term buying, selling, lending, and borrowing happen with maturities of less than a year.This covers various contracts such as a currency futures contract. Futures Contract: This is a standard contract between two parties for buying or selling assets at an agreed price and quantity on a specified date.This covers contracts such as forwarding exchange contracts for commodities and currencies. Forward Contract: It is a contract between two parties for buying or selling assets on a specified date, at a particular price.Hedging strategies are broadly classified as follows: Currencies: This area comprises foreign currencies and has various associated risks such as volatility and currency risk.Weather: This might seem interesting, but hedging is possible in this area as well.The risk associated with the interest rates is termed as the interest rate risk. Interest Rate: This area includes borrowing and lending rates.The risk entailed in investing in the commodities market is referred to as the commodity risk. Commodities Market: This area includes metals, energy products, farming products, and so on.The risk involved in investing in the securities market is known as equity or securities risk. Securities Market: This area includes investments made in shares, equities, indices, and so on.Hedging is employed in the following areas: Hedging does not prevent the investments from suffering losses, but it just reduces the extent of negative impact. The hedging techniques are not only employed by individuals but also by asset management companies ( AMCs) to mitigate various risks and to avoid the potential negative impacts. The best example of hedging is availing of car insurance to safeguard your car against damages arising due to an accident. To hedge, you technically invest in two different instruments with adverse correlation. Hedging is used by those investors investing in market-linked instruments. A hedge is an investment status, which aims at decreasing the possible losses suffered by an associated investment. Hedging in finance refers to protecting investments.