Why do future contracts are used for hedging?

Futures contracts are used for hedging because they allow businesses and investors to lock in prices for assets or commodities, thereby reducing the risk of price fluctuations. By entering into a futures contract, a party can secure a predictable cost, which helps in budgeting and financial planning. This strategy is particularly beneficial in volatile markets, as it provides a safeguard against adverse price movements. Ultimately, hedging with futures aims to stabilize cash flows and protect profit margins.