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General TradingH
Hedge Ratio
The proportion of a position that is hedged compared to the total position size. A hedge ratio of 1.0 (or 100%) means the entire position is fully hedged, while a ratio of 0.5 means only half the exposure is offset. It helps traders calibrate how much risk protection they need.
Example
“A portfolio manager with $1 million in stocks used a hedge ratio of 0.6, purchasing $600,000 worth of put options to protect against a market downturn while still retaining some upside exposure.”