What Are the Most Common Types of Derivatives Used for Hedging?

The most common types of derivatives used for hedging are futures, forwards, options, and swaps. Futures and forwards are contracts to buy or sell an asset at a predetermined price on a future date.

Options provide the right, but not the obligation, to buy (call option) or sell (put option) an asset at a set price. Swaps involve exchanging cash flows between two parties, commonly used for hedging interest rate or currency risk.