Glossary
Hedging
Hedging is placing a second bet on the opposite outcome to reduce risk on an existing wager. It can lock in a portion of a potential win or limit a possible loss, trading away some upside for a more certain result no matter how the event turns out.
Hedging is a deliberate change of mind about risk. You already hold a bet, and you place another on the other side so the two outcomes sit closer together. The classic case is a futures ticket that is one leg from a large payout. Rather than let it all ride, a bettor might bet the opposing side to guarantee a smaller sum either way.
The tradeoff is always the same. Hedging shaves off some of the best-case win in exchange for softening the worst case. Whether that trade is worthwhile depends on the numbers and on how much uncertainty a person is comfortable carrying.
How it differs from arbitrage
Hedging usually starts with a bet you wanted, then adds protection later. Arbitrage instead sets up both sides at once specifically because a pricing gap guarantees a locked result. Hedging is about managing an open position, not exploiting a discrepancy.
Not free money
A hedge almost always costs something, because the two prices include the book's margin. It buys certainty, not a guaranteed gain, and the arithmetic should be checked before the second bet is placed.
Hedging is a risk tool, useful when the situation calls for it and easy to overuse when it does not.