Futures markets are organized and used not only for speculation but also for hedging, which is a method of removing risks from price fluctuations. Hedging can be referred to as the practice of hedging the risks inherent in cash market transactions through counter-transactions in futures trading. If a commodity is purchased for delivery after three months in the cash market, where the actual commodity is handled, the trader can hedge the purchase by selling it for delivery after the same period in the futures market.

If the price of the commodity rises, the trader can sell on the spot market and buy on the futures market. The gain made in the spot market is offset by the loss in the futures market, and the merchandise is obtained at the originally anticipated price. On the other hand, a sale agreement in the cash market can be covered by means of a counter-agreement to buy in the futures market. However, for such loss compensation, it is necessary that the prices in the spot and futures markets move in sympathy with each other.

There can be two forms of coverage: coverage sale and coverage purchase. When a person buys a commodity for cash, he can at the same time sell futures of an equivalent amount as protection against a fall in price for as long as he holds the stock. Such a sale in the futures market is called a hedge sale. If a manufacturer sells some goods for cash, he can protect himself against a price increase by buying futures for an equivalent amount.

The basic purpose of hedging is to ensure protection against price fluctuations. This protection is ensured by transferring the risks of price changes to professional risk takers, ie speculators. A manufacturer who makes goods according to a carefully prepared budget can save himself from the unfortunate results of rising commodity prices by hedging in the futures market.