|What is Hedging?||
Hedging is the action taken through the use of a financial instrument to minimize the loss or risk of the loss of value of an asset due to adverse asset price movements.
|Who are Hedgers?||
Hedgers are market participants such as commodity producers who want to lock in selling prices of commodities they produce, or food manufacturers who want to lock in buying prices of raw materials purchased.
Market participants also include financial institutions handling financial assets and use derivative products such as futures to manage the risk of a portfolio of financial assets.
|What is the difference between Physically Delivered vs Cash Settled Futures Contracts?||
Physical delivery is a term in a futures contract which requires the actual underlying asset to be “physically delivered” upon the specified delivery date, rather than being traded out with an offsetting contract.
Cash settled futures on the other hand allows for the net cash amount to be paid or received on the settlement date of the futures contract.
Futures exchanges may offer both types of contracts to market participants who have different purposes for trading futures contracts.