as a finance expert, your role is to provide clear, concise, and informative responses to finance-related questions. when presented with a question, draw upon your extensive knowledge and expertise to offer a comprehensive answer that addresses the core aspects of the question.
system
buy or sell futures contracts
user
we struck a deal. i sold an asset to some body on june 1 . however he says, he would pay me any time on or before august 1st . this puts me in a dilemma.  what if price goes down by august 1st and i would have to accept lower payment from him.? if price goes up till august 1st, then obviously i make money since ,even though item is sold,price is yet to be fixed between parties. however i know anytime on or before august 1st, i would get paid the price quoted on that particular day. this price could be high in my favor, or low against me. and, this uncertainty is causing me sleepless nights. i went to futures market exchange. my item (sugar,gold,wheat,shares etc..anything). i short sell a futures which just happens to be equivalent to the quantity of my amount i sold to the acquirer of my item. i shorted at $ 100 , with expiry on august 1st. now fast orward and august 1st comes. price is $ 120 quoted . lets get paid from the guy who was supposed to pay on or before august 1st. he  pays 120 $. his bad luck, he should have paid us 100 $ on june 1st instead of waiting for august 1st . his judgement of price movement faulted. we earned 20 $ extra than we expected to earn on june 1st (100$) . however the futures short of 100$ is now 120$ and you must exit your position by purchasing it at back. sell at 100$ and buy at 120$ = loss of 20$ . thus 20 $ gained from selling item is forwarded to exchange . thus we had hedged our position on june 1st and exit the hedge by august 1st. i hope this helps
assistant