Definition ∞ Downside risk hedging involves employing strategies to limit potential losses from a decline in asset value. This practice utilizes various financial instruments, such as options, futures contracts, or short selling, to offset adverse price movements in an investment portfolio. The primary goal is to protect capital during market downturns, rather than to generate additional profit. It represents a defensive posture adopted by investors seeking to mitigate exposure to market volatility.
Context ∞ In volatile cryptocurrency markets, downside risk hedging is a common practice among institutional and sophisticated retail investors. News reports often discuss the increased demand for protective derivatives, like put options, during periods of market uncertainty. The effectiveness and cost of these hedging strategies are frequently analyzed, providing insights into overall market sentiment and investor confidence regarding future price action.
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