[levthedev]

Boglehead investing is generally the safe and correct pick for the average investor, but large corporations, hedge funds, banks, and so on, all require hedging.

A simple example is a corporation that buys goods in China and sells them in the US. This corporation does not want to lose money due to a poor USD/Yuan exchange rate, so they hedge that risk by buying a financial instrument that guarantees them a certain USD/Yuan exchange rate.

Does the average Joe ever need to hedge currency risk? No. But large institutions do. And this is just a single risk; hedging is not just used for exchange rate risk, but also for credit risk, interest rate risk, asset price risk, liquidity risk, disaster risk, political risk, and so on. Any kind of risk can be priced (see for instance, health insurance and car insurance for consumers, a mechanism by which large corporations price the bulk of consumer risk), and there are many trillions of dollars that belong to groups that especially dislike certain risks, and therefore wish to hedge them.