The principal economic benefit provided by the futures market is the transfer of price risk from producers and users of cash commodities to investors and speculators. This can be achieved through a trading technique called hedging.

A hedge is the establishment of a futures position that is opposite of a cash position. The individual who has a stock of a cash commodity and has committed to sell it at a later date will sell a corresponding futures contract to hedge the position. The sale of futures will serve as a temporary substitute for the cash market sale that he will make at a later date. If the price declines on his cash position, he will have a loss on the cash market sales. However, this loss will be substantially offset by the corresponding gain from his futures position. In whichever way market goes, his profit is to a great extent, guaranteed.

Similarly, the individual who does not have the cash commodity but has committed to buy at a later date will hedge by buying futures. The purchase of the futures contract will also serve as a temporary substitute for the later cash market purchase, if the price of the cash commodity rises, the buyer will have to buy at the higher price. However, any loss he incurs from the cash market purchase will be offset by the profits from the futures contract.