To make a hedge is to establish a position in the futures market to temporarily replace a purchase or sale on the available market. The key point to remember is that futures hedging is a tool used to minimize the risk of prices moving adversely.

The spot market and the futures market are different but are influenced by many common factors. Consequently, quotes on both markets tend to move in the same direction, especially when the month of maturity of the futures contract is close to the date on which the price is considered available. Since the more distant the maturity is, more unknown factors are involved in the prices. Therefore, the spot market prices and the futures market prices converge as they approach to maturity. All these factors make futures hedging possible.

There are two basic types of coverage:

Short hedging
Long hedging