Can Hedging with Derivatives Eliminate All Financial Risk?

No, hedging with derivatives cannot eliminate all financial risk. While it is a powerful tool for mitigating specific risks like price volatility, it does not remove all potential for loss.

Hedging strategies can introduce other risks, such as basis risk, liquidity risk, and counterparty risk. Furthermore, hedging often comes at a cost, which can reduce potential profits even if the market moves in a favorable direction.

The goal of hedging is to manage and reduce risk to an acceptable level, not to eliminate it entirely.