Hedging

The practice of speculating on the price for a future commodity to avoid exposure to the risk of unacceptably large variations in real time price movements. There is usually a price to be paid for purchasing a future commodity at a hedged price; the price charged for the commodity commonly includes an extra charge to protect the seller against the risk of losing money through selling a commodity that he may have to purchase in the future at a price that is possibly higher than the price at which he contracts to provide it for.