Futures market participants are not limited to banks and hedge fund managers increasingly, the markets are being used to manage, or hedge, risk using exchange traded futures and options by a wide variety of individuals and corporations.

The goal of any futures hedge account is to manage risk through the use of futures contracts or options on futures. The first step is to identify and quantify the risk faced by a client from there, a hedging strategy is developed which affects an opposite result in the client account. The effect is a netting relationship between the clients risk and the futures account a gain in one is equally offset by a loss in the other - creating a financial equilibrium which has the effect of reducing risk.

The following Case Studies were developed to demonstrate how risk is identified and quantified, and how a hedging strategy using futures can help to manage risk. While each case study represents a fictitious client, they represent a sample of the growing individual and corporate population using the futures markets to hedge risk.

A Canadian manufacturer with US dollar receivables, concerned about potential losses associated with an appreciating Canadian dollar. To manage the company's currency risk, a currency hedge is established using futures contracts to protect against fluctuations in the CAD/USD exchange rate.

A fuel distribution company wants to offer their clients a cap pricing model. Using call options on heating oil futures, the company can lock in a maximum purchase price for their oil, thereby limiting upside price risk, enabling them to pass on those benefits to their clients and gain a competitive advantage.

A Canadian wheat producer expecting to harvest 50,000 bushels later this year. The producer is concerned that by the time harvest arrives, the price of wheat may fall. Using futures contracts, the producer can sell forward its inventory, thereby assuring a sale price in the future and enables the producer to predict future revenue with greater certainty.