Trader Resources : Hedging in the Futures Markets : Types of Hedges
Depending upon whether a hedger is planning to buy or sell products in the cash market, he will use one of the two types of hedges to minimize his risk. These are described in detail below:

• Short Hedge - In a short hedge, the hedger's first action is to sell a futures contract. Short hedges are used by hedgers who are planning on selling to sell a product in the cash market at a later date. Hedging allows them to lock in a selling price for their cash sale.
• Long Hedge - In a long hedge, the hedger's first action is to purchase a futures contract. Long hedges are used by hedgers who are planning to purchase a physical commodity at some point in the future. Hedging allows them to lock in a purchase price for that purchase.

There are also several more specialized hedge types. Some of these are listed below:

• Carrying Charge Hedge - Using a carrying charge hedge, a merchant can profit from storing a product. To achieve this, a merchant purchases and stores a product. He then hedges this product to profit from the storage costs.
• Operational Hedge - A merchant uses an operational hedge to establish the price of an input or output. This is usually over the short term, ignoring changes in basis because it is unlikely to change drastically over the short period of time the hedge is in effect. Operational hedges are used to seek protection against rapid price change.
• Selective Hedge - Selective hedging involves hedging according to price expectations. A merchant will hedge according to objectives and risk tolerance.
• Anticipatory Hedge - Anticipatory hedges substitute for merchandising to be done later. These hedges are useful when a merchant expects a future sale or purchase.
• Cross Hedge - A cross hedge is done when a merchant hedges in a commodity market different from the cash product they are interested in. Instead hedging a commodity that has a high price correlation to their cash product. For example, hedging corporate bonds with treasury bonds.

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