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Which Different Types of Hedge Exist?

Types of Hedge with futures

A short hedge serves to hedge an existing cash position (long cash position) with an offsetting futures position (short futures position).

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A long hedge serves to hedge a planned cash position (which is effectively a short cash position) with an offsetting futures position (long futures position).

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Long or short hedges are called cross-hedges when the selected futures contract does not correspond exactly with the cash position to be hedged (a similar but not identical underlying instrument).

Example:
Hedging a portfolio of DAX shares with a Dow Jones EURO-STOXX 50 Future®.

In the purest sense, all hedges using futures contracts are really cross hedges. The reason for this is that the futures contract is a standardized product and the position to be hedged is not.

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