HOW DOES ONE HEDGE WITH FUTURES? For hedging using futures, the hedger can take a position in the futures market and lock-in prices. For instance, a cotton farmer who faces the risk of fall in price after harvest, can hedge by selling cotton futures much ahead of harvest. The prevailing price at which he enters the market will become the effective price irrespective of which way the price moves later. Similarly, a copper procuring firm, facing the risk of a possible rise in prices, can hedge by buying copper futures and locking-in the metal’s effective price. In each case, the hedger can exit the market by either actually selling/ buying the commodity in/from the exchange-accredited warehouse, or financially settling by taking the reverse position. Whatever be the choice, the hedger’s effective price is locked-in at the time he entered the futures market.