Futures Hedging

Core idea

Futures hedging uses standardized contracts to offset a portfolio’s price sensitivity. Contract value, beta, duration, multiplier, expiry, and basis determine how many contracts are required.

Implementation

Sizing must translate portfolio exposure into contract units and account for rolls and margin.

Primary risk

Basis and contract mismatch can cause the hedge and the underlying portfolio to move differently.

Frequently asked questions

What is futures hedging?

Futures hedging uses standardized contracts to offset a portfolio’s price sensitivity. Contract value, beta, duration, multiplier, expiry, and basis determine how many contracts are required.

What is the main risk of futures hedging?

Basis and contract mismatch can cause the hedge and the underlying portfolio to move differently.