Name the original problem first
Suppose a company expects to sell 100 units. The initial commodity price is 100, so expected revenue is 10,000. In the scenario, the sale price falls to 90 and proceeds become 9,000. The underlying cash-flow change is negative 1,000. This is a revenue risk, not the company’s total return: cost, demand, currency, taxes and other conditions are excluded. Define the protected amount precisely before asking what an additional contract should offset.
Now assume an existing teaching-model short futures position on the same 100 notional units. The contract price falls from 103 to 95, producing a gain of 800 before expenses. Combined with the commodity-flow change, the remainder is negative 200. The match is incomplete: the cash price fell by 10 while the futures price fell by 8. This shows residual basis risk. It does not recommend the position or assume that the contract fits the real commodity, delivery place or business dates.
Matching names is not enough
The commodity may differ in quality, logistics and selling location. The financial flow may use a different currency, index or price-setting date. A futures contract has its own specification and settlement method; MOEX distinguishes cash-settled and deliverable structures.[23](#source-cm-futures) “A contract on a similar asset” therefore does not prove that risk is eliminated. List the differences and explain why the match is used in the model. Unknown dependence cannot be replaced with an assumption that all similar prices always move together.
Quantity is another source of uncertainty. Planned sales may change while the derivative position stays fixed, leaving part of the obligation unmatched. Contract size may also prevent an exact match. This is a correspondence check, not an optimal hedge-ratio calculation: identify how many risk units exist and how many belong to the additional contract. Equal cash notional does not always mean equal sensitivity to the relevant measure.
Profit timing and cash timing differ
Futures revaluation may require cash before the company receives commodity revenue. MOEX describes variation margin, and the CFTC describes futures collateral.[23](#source-cm-futures)[25](#source-cm-margin) Even if two final amounts partly offset, the cash path can be strained. Do not call a hedge risk-free without analysing interim liquidity. Future commodity revenue may not be immediately usable for today’s requirement, especially across legal entities, currencies or banking procedures.
A check question is: if the commodity price changes but the expected sale is cancelled, does an economic reason for the derivative obligation remain? The answer depends on other business risks, but the original link has already broken and needs a new description. A date mismatch can likewise leave an uncovered period or an unnecessary position. These questions are more useful than the general label “insurance,” which can hide costs and mandatory payments.
For an educational map, list the original risk, protected amount, measure, quantity, dates and cash scenario for both sides. Then list remaining differences and costs. [Introduction to derivatives](/guides/futures-and-options/) covers obligations, [profit and cash](/guides/profit-vs-cash/) distinguishes economic effect from liquidity, and [portfolio risk](/guides/portfolio-risk/) sets limits on overall offset. This material does not propose a hedge, provide a coefficient for a real business or confirm that the reader should accept derivative obligations.
What counts as a successful explanation
If the derivative loses money but the underlying flow improves, the isolated loss does not prove the whole relationship was pointless. Conversely, a contract profit does not prove the original problem was solved: the underlying flow may have worsened more. Evaluate the combined result against the risk named at the outset, not the most attractive isolated measure.
Offsetting expected value does not guarantee cash availability on each date. Show interim requirements and resources separately. If new trades are added, the original example no longer describes the whole obligation set. Update the model openly: positions remaining, changed flows and the risk now treated as protected. This is a correspondence check, not a recipe for hedge size or a promise of complete uncertainty removal.