# How Does a Futures Contract Work in Hedging a Commodity Price? ⎊ Path

**Published:** 2025-12-04
**Author:** Greeks.live
**Categories:** Path

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## How Does a Futures Contract Work in Hedging a Commodity Price?

A futures contract is an agreement to buy or sell a specific quantity of a commodity at a predetermined price on a future date. A producer of a commodity can hedge against falling prices by selling a futures contract.

This locks in a selling price for their future production. Conversely, a consumer of that commodity can hedge against rising prices by buying a futures contract, which locks in a purchase price.

This strategy helps both parties mitigate the risk of price volatility.

- [What Is a Margin Call in the Context of Futures Contracts?](https://learn.greeks.live/path/what-is-a-margin-call-in-the-context-of-futures-contracts/)

- [How Do Investor Lock-Ups Differ from Team Lock-Ups?](https://learn.greeks.live/path/how-do-investor-lock-ups-differ-from-team-lock-ups/)

- [How Are Futures Contracts Settled?](https://learn.greeks.live/path/how-are-futures-contracts-settled/)

- [Define the Term “Priority Fee” in the Context of Transaction Ordering](https://learn.greeks.live/path/define-the-term-priority-fee-in-the-context-of-transaction-ordering/)

- [Does the Price-Time Priority Rule Apply to Automated Market Makers (AMMs)?](https://learn.greeks.live/path/does-the-price-time-priority-rule-apply-to-automated-market-makers-amms/)

- [What Does It Signify When Implied Volatility Is Much Higher than Historical Volatility?](https://learn.greeks.live/path/what-does-it-signify-when-implied-volatility-is-much-higher-than-historical-volatility/)

- [What Is a Sandbox Environment in the Context of Crypto Regulation?](https://learn.greeks.live/path/what-is-a-sandbox-environment-in-the-context-of-crypto-regulation/)

- [Can Private Mempools Effectively Prevent Front-Running Attacks?](https://learn.greeks.live/path/can-private-mempools-effectively-prevent-front-running-attacks/)

## Glossar

### [Futures Contracts](https://learn.greeks.live/area/futures-contracts/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Mechanism ⎊ Futures contracts, within cryptocurrency and broader financial derivatives, represent standardized agreements obligating parties to transact an asset at a predetermined price on a specified future date; these instruments facilitate price discovery and risk transfer, extending beyond traditional commodities to encompass digital assets and complex financial indices.

### [Futures Contract](https://learn.greeks.live/area/futures-contract/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Leverage ⎊ Futures contracts in cryptocurrency represent agreements to buy or sell an underlying asset at a predetermined price on a future date, functioning as a derivative instrument that allows for amplified exposure without immediate asset ownership.

## Discover More

### [How Do Price Oracles Work and Why Are They a Central Point of Failure?](https://learn.greeks.live/path/how-do-price-oracles-work-and-why-are-they-a-central-point-of-failure/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Do Price Oracles Work and Why Are They a Central Point of Failure?](https://learn.greeks.live/wp-content/uploads/2025/10/Nodal-Architecture-of-Decentralized-Autonomous-Organization-Protocol-Governance-Module-Envisioning-Tokenomics.webp)

Oracles feed external price data to smart contracts; they are a central failure point because manipulated or inaccurate data can corrupt the protocol.

### [What Is a Futures Contract and How Does It Work in the Context of Cryptocurrency?](https://learn.greeks.live/path/what-is-a-futures-contract-and-how-does-it-work-in-the-context-of-cryptocurrency/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is a Futures Contract and How Does It Work in the Context of Cryptocurrency?](https://learn.greeks.live/wp-content/uploads/2025/10/Macro-Focus-on-Optic-Sensor-Housing-for-Decentralized-Autonomous-Organization-Governance-Surveillance.webp)

A crypto futures contract is an agreement to buy or sell a cryptocurrency at a set price on a future date, allowing speculation on price.

### [What Is the Role of an Index Price in the Settlement of a Crypto Futures Contract?](https://learn.greeks.live/path/what-is-the-role-of-an-index-price-in-the-settlement-of-a-crypto-futures-contract/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is the Role of an Index Price in the Settlement of a Crypto Futures Contract?](https://learn.greeks.live/wp-content/uploads/2025/10/Decentralized-Finance-Cryptographic-Asset-Structure-Unveiling-Mechanism-Explaining-Complex-Option-Payoff-Profiles.webp)

It is the weighted average spot price from multiple exchanges used as the benchmark to calculate the final cash settlement amount.

### [What Is the Primary Difference between a Forward Contract and a Futures Contract?](https://learn.greeks.live/path/what-is-the-primary-difference-between-a-forward-contract-and-a-futures-contract/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is the Primary Difference between a Forward Contract and a Futures Contract?](https://learn.greeks.live/wp-content/uploads/2025/10/Decentralized-Finance-Instrument-Volatility-Surface-Mapping-Utilizing-Stochastic-Calculus-for-Digital-Asset-Option-Pricing.webp)

Forwards are customized and OTC, while Futures are standardized, exchange-traded, and cleared by a clearinghouse.

### [How Does the Settlement Process for a Crypto Futures Contract Differ from a Traditional Commodity Future?](https://learn.greeks.live/path/how-does-the-settlement-process-for-a-crypto-futures-contract-differ-from-a-traditional-commodity-future/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does the Settlement Process for a Crypto Futures Contract Differ from a Traditional Commodity Future?](https://learn.greeks.live/wp-content/uploads/2025/10/Decentralized-Autonomous-Organization-Governance-Mechanism-Indicating-Complex-Financial-Derivative-Settlement-Architecture.webp)

Crypto futures are mostly cash-settled (financial), exchanging the price difference; traditional commodities can be physically settled (delivery).

### [How Does Delta Hedging by Options Market Makers Contribute to a Price Spiral?](https://learn.greeks.live/path/how-does-delta-hedging-by-options-market-makers-contribute-to-a-price-spiral/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does Delta Hedging by Options Market Makers Contribute to a Price Spiral?](https://learn.greeks.live/wp-content/uploads/2025/10/High-Fidelity-Digital-Asset-Volatility-Surface-Modeling-for-DeFi-Option-Pricing-Mechanisms.webp)

MMs must sell the underlying asset to maintain delta neutrality as price falls, adding selling pressure to the market.

### [What Happens If the Price of the Commodity Moves in the Hedger's Favor?](https://learn.greeks.live/path/what-happens-if-the-price-of-the-commodity-moves-in-the-hedgers-favor/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Happens If the Price of the Commodity Moves in the Hedger's Favor?](https://learn.greeks.live/wp-content/uploads/2025/10/Dual-Lens-Digital-Sensor-Array-Representing-Decentralized-Exchange-Liquidity-Provisioning-Mechanisms.webp)

If the price moves favorably, the hedger loses on the derivative but gains on the actual asset, effectively canceling each other out.

### [What Is the Difference between Spot Price and Futures Price in Crypto Trading?](https://learn.greeks.live/path/what-is-the-difference-between-spot-price-and-futures-price-in-crypto-trading/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is the Difference between Spot Price and Futures Price in Crypto Trading?](https://learn.greeks.live/wp-content/uploads/2025/10/Abstract-Visualization-of-Decentralized-Finance-Volatility-and-Derivative-Hedging-Mechanics.webp)

Spot price is for immediate transaction, while futures price is for a transaction at a future date, reflecting time value and market expectations.

### [How Does the Transition from Proof-of-Work to Proof-of-Stake Affect MEV Capture?](https://learn.greeks.live/path/how-does-the-transition-from-proof-of-work-to-proof-of-stake-affect-mev-capture/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does the Transition from Proof-of-Work to Proof-of-Stake Affect MEV Capture?](https://learn.greeks.live/wp-content/uploads/2025/10/Conceptual-Abstraction-of-Decentralized-Autonomous-Organization-Governance-Token-Staking-Dynamics-and-Ring-Signature-Fidelity.webp)

MEV capture shifts from PoW miners to PoS validators/proposers, leading to the development of PBS to decentralize extraction.

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**Original URL:** https://learn.greeks.live/learn/how-does-a-futures-contract-work-in-hedging-a-commodity-price/
