To avoid committing oneself; to leave a means of retreat open.
Hedge has been used as a verb in English since at least the 16th century, with the meaning of equivocate; avoid commitment. An example of this comes in ShakespearesMerry Wives of Windsor, 1600:
I, I, I myself sometimes, leaving the fear of God on the left hand and hiding mine honour in my necessity, am fain to shuffle, to hedge and to lurch.
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 ones debts, for example,John Donnes 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 ones 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 playThe Rehearsal, 1672:
Now, Criticks, do your worst, that here are met; For, like a Rook, I have hedgd 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.
Curiously, the original examples of another financial device currently newsworthy that is, stocks, were literally made from material that was taken from hedges. In the 17th century, the tally that recorded a payment to the English Exchequer was a rough stick of about an inch in diameter, split along its length. One half, the stock, was given as a receipt to the person making the payment; the other half, the counterfoil, was kept by the Exchequer. Ownership of payments that were made jointly by a group were shared among the members of so-called joint stock companies, hence stocks and shares.