Futures Hedge

A futures hedge is a hedge transacted in the futures market for foreign currencies. A futures contract is an agreement between two parties to enter into a transaction at some future date and at a price agreed to at the time the agreement is made. For this purpose, the main difference between a forward hedge and a futures hedge is that futures are exchange traded and are much more standard than forward contracts. In terms of foreign currencies, a futures hedge entitles a firm to either purchase or sell units of an individual currency for a negotiated price at a future time. Outside the foreign currencies market, the instrument is normally called a future, without the word hedge. See also forward hedge and options hedge and money market hedge.