@adm had it explained well. Hedging is just reducing your exposure to risk, its like taking an umbrella with you when its sunny, when your app tells you theres a 10% of rain today. If it rains you have it to use whilst others get wet. Or betting on another horse in a race.
Interesting etymology on hedge
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It began to be used in relation to financial transactions, in which a loan was secured by including it in a larger loan, in the early 17th century. Initially, the phrase associated with this form of hedging was ‘hedging one’s debts’, for example, John Donne’s Letters to Sir Henry Goodyere , circa 1620:
“You think that you have Hedged in that Debt by a greater, by your Letter in Verse.”
‘Hedging one’s bets’ was coined later in that century. It referred to the laying off of a bet by taking out smaller bets with other lenders. The purpose of this was to avoid being unable to pay out on the original larger bet. The phrase was first used by George Villiers, the 2nd Duke of Buckingham, in his satirical play The Rehearsal , 1672:
“Now, Criticks, do your worst, that here are met; For, like a Rook, I have hedg’d in my Bet.”
The verb ‘to hedge’ derives from the noun hedge, that is, a fence made from a row of bushes or trees. These hedges were normally made from the spiny Hawthorn, which makes an impenetrable hedge when laid. To hedge a piece of land was to limit it in terms of size and that this gave rise to the ‘secure, limited risk’ meaning. Hedge funds, much in the news nowadays, take their name from their method of limiting, that is, hedging, their risk.