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What Is Hedging?


The concept of hedging is based upon the assumption that movement in cash and futures prices will parallel each other in movement after due allowance has been made for any seasonal or other trend in the cash market.
In essence, the goal of the hedger is to lock in an approximate future price in order to eliminate his risk of exposure to interim price fluctuations.  The best way to understand hedging and the futures market is by example.  I will assume that you have no understanding of the futures market.

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