Definition ∞ Hedging costs are the expenses associated with implementing strategies to reduce potential financial losses from adverse market movements. These costs can include fees for derivatives contracts, premiums for options, or transaction charges for offsetting positions. They represent the price paid to mitigate risk exposure in a portfolio. Understanding hedging costs is vital for accurately assessing the net profitability of risk management efforts.
Context ∞ For entities with significant digital asset holdings, hedging costs are a crucial consideration due to the inherent volatility of cryptocurrencies. Businesses often evaluate various financial instruments to protect against price swings in Bitcoin or other digital assets. The availability and pricing of these hedging tools are constantly evolving as the digital asset market matures.
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