Originally Posted by Bucking Bar

A commodity hedge is a contract to provide a good for a specified price. If your contract is for more than the market price and you are contracted to buy at a higher than market price the difference between market and what you are forced to pay is a "loss."

In practical terms, Airlines hedge in heating oil futures. But, we don't burn heating oil. The contracts have to be resolved and they are forced to sell their positions at a loss.

Newspapers report hedging results like the airlines are market speculators hoping to make a buck, but that is not the case. The real point of hedging is not to game the market, but rather to lock in a stable price so you can plan your business going forward.