Trader Resources : Hedging in the Futures Markets : Defining Hedging
Along with speculation, hedging is one of the two major functions of the futures markets. While speculators strive to earn profit, and aid in the price discovery of commodities, hedgers use the futures markets to manage risk.

Hedging is the practice of taking a position in the futures market equal, but opposite, to a position held in the cash market to minimize the risk of financial loss from an adverse change in price or production yield.

This practice is used by business managers, farmers, and others to manage price risk. Farmers, for example, use hedging to ensure that changes in the price of their crop will not drastically affect their cash positions.

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