What is the term for an investment strategy that aims to reduce potential losses?

The term that refers to an investment strategy aimed at reducing potential losses is hedging. Hedging involves taking a position in a financial asset or utilizing financial instruments to offset potential losses in another investment. The goal is to protect against price fluctuations and mitigate risk, essentially serving as a form of insurance against adverse market movements.

In contrast, diversification, while also a risk management strategy, spreads investments across various assets to minimize the impact of a single asset's poor performance on the overall portfolio. While diversifying can help reduce risk, it may not provide the immediate safeguards against specific losses like hedging does.

Leverage involves borrowing funds to increase the potential return on investment, which inherently increases risk rather than reducing it. Similarly, adopting a long position means purchasing assets in anticipation of price increases; this also does not inherently provide a safety net against losses.

Hedging is therefore the most applicable term for an investment strategy focused on loss reduction, aligning with the definition and objective of such strategies in investment management.