Risk Management helps protect a business from losing a substantial amount of money in highly volatile market conditions. In one way or the other, each one of us have at some point applied risk management techniques to protect our financial interests. It can be a simple medical insurance policy to ensure that financial crisis doesn't arise due to huge hospital bills. Similarly in business, especially with commodities that are highly volatile due to various factors may cause immense financial burden due to the rise and fall of the markets. For instance a business house stocks up huge inventories in anticipation of future sales and finds that the prices have come crashing down will result in huge losses, they can protect their losses by hedging their open positions in the futures market. Counter positions in futures are taken with the same commodity or the commodity that inherits similar price trends.
