Since JP Morgan revealed that $2 billion had been lost on a bad “hedge” in its London Chief Investment Office, politicians and observers have begged the question — what exactly is a hedge?
Jamie Dimon has fumbled around the question (and its variation, what’s the difference between a hedge and a trade?) for the last two weeks during his testimony on Capitol Hill.
We feared that no one would be able to give it to us straight.
Luckily today Gary Cohn sat down with Bloomberg’s Eric Schatzker and laid it all out for us.
“A hedge is an opposite trade that you put on to manage a risk that already exists. If you’re making money, you should be losing it somewhere else. If you’re making too much money, you’re doing it wrong.”
Of course, you could also be losing too much money.