Futures can be used as arbitrary, speculation or hedging tools. This paper is dealing with the letter one, the hedging tool. First of all the author wants to explain what hedging contains. Hedging is generally a finance transaction as a safeguard against risks such as exchange rate fluctuations or changes of commodity prices. The person or company who wants to hedge a transaction, also called the Hedger, is doing another transaction which is directly linked to the underlying transaction. One instrument to do this is a Future. A Future is a binding standardized contract, to buy or sell a specified good of standardized amount and quality at a certain date in the future, at a determined future price. The future date is called the delivery date or final settlement date and the price of a future contract at the end of a trading day is called the settlement price. In contrary to Forwards Futures are traded at stock exchanges such as the CME or EUREX. That guarantees transparency, low transaction costs and easy market access. So for example an October contract of gold at the NYMEX always covers 100 ounces at a purity level of 0.995. The price of a Future is determined by the equilibrium between supply and demand among competing buy and sell orders on the exchange at the time of the purchase or sale of contract. There are no costs for placing a contract in form of premiums. Both the seller and the buyer of a future have the same rights and responsibilities and that is why there don`t need to be a compensation between the parties. That is for example a big difference to an Option for which you have to pay a premium. But both parties have to make an advance payment. It is a security deposit and it is also called Initial Margin. The Initial Margin is only a small amount of the contract, for example 4% of the contract, and can be adjusted downwards or upwards depending on the volatility. The amount will be placed on a margin account in the form of cash or first-grade government bonds. Because of these margin accounts futures have a lower credit risk than for example forwards. So how do companies or persons use future contracts to mitigate the risk? As an example we look at a company which takes the Long position in a futures contract (Long Hedge). The company needs 100000 pounds of copper in 4 month to fulfill another contract. The spot rate of copper right now is 140 Cents per pound and the future rate for May is 140 Cent per pound. The company is going to hedge the risk by buying 4 future contracts and their closing at the specific future date in May. Each contract contains 25000 pounds of copper and the desired price for the copper is going to be 120 cents per pound. Now we consider that the spot rate at the specific future date in May is going to be 125 Cent per pound and the future rate is close to this spot rate. The company then has to pay $125000 for the copper and additionally gets $5000 (100000*($1.25-$1.20)) out of the future contract. So the overall costs are $120000. Now we consider that the spot rate at the specific future date in May is going to be 105 Cent per pound. The company only has to pay $105000 for the copper. But it also loses $15000 (100000*($1.20-$1.05)) out of the future contract. So again the overall costs are $120000. So summarizing in both cases the company can calculate with costs of $120000.  REFERENCE 1. Hull, J. C. (2005). Options, Futures and Other Derivatives. Mason, Ohio: Prentice Hall. 2. Wikipedia (2009). Futures. Retrieved May 06, 2009, from http://en.wikipedia.org/wiki/Futures_contract