Market Neutral

In finance, the term market neutral denotes investments which do not make losses regardless of how markets perform. Market neutral investment makes use of hedging to avoid risk.

Example: An investor goes long on 10,000 shares and simultaneously goes short on the same 10,000 shares. In this way, losses incurred by the long position are compensated for by gains in the short position, and vice versa.

A fully market neutral investment will perform identically in all market scenarios.

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Editor Daniel Dreier
Daniel Dreier is editor and personal finance expert at moneyland.ch.

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