Dairy Futures and Options Tutorial

Definition of Hedging

You undertake a hedging marketing strategy when you take a position in futures market that fully or partially offsets price risks from your present cash position. The primary principle in hedging is that the gains (losses) in one market tend to offset the losses (gains) in the other market if you correctly hedge.

Cash Market Futures Market
Owner of Actual Commodity [Long]
  • Lose in Down Markets
Seller of Contracts [Short]
  • Gain in Down Markets
User of Actual Commodity [Short]
  • Lose in Up Markets
Buyer of Contracts [Long]
  • Gain in Up Markets