What Is the Primary Purpose of Hedging with Derivatives?

The primary purpose of hedging with derivatives is to manage and mitigate financial risk. It is a strategy used to offset potential losses in an investment by taking an opposing position in a related asset.

Derivatives like futures, options, and swaps are used to protect against adverse price movements in underlying assets such as commodities, currencies, or interest rates. This allows companies and investors to reduce the impact of price volatility without having to sell the actual underlying assets.