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The Long Hedge
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How Does a Long Hedge Work?

 

Hedgers who are planning to purchase livestock in the future will be at a disadvantage if prices increase. They can use long hedges to control that risk. First,
they buy futures contracts to cover the cash livestock they plan to buy. When they are ready to purchase the feeder or stocker cattle, they will sell back the futures contracts and buy in the cash market simultaneously. The long hedges allow them to lock in a purchase price for the cattle.

 

Details: The Long Hedge

Legal Disclaimer and Risk Disclosure: Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leverages investment, and because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. All orders are entirely at your risk, and it will be your responsibility to monitor these orders. There are limitations to the protection given by stop loss orders therefore we give no assurance that limit or stop loss orders will be executed, even if the limit price is met, in full or at all.
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