There is a cost associated with each hedging method. As a result, before deciding to use hedging, you should determine whether the potential benefits outweigh the cost. The purpose of hedging is not to make money, but to protect against losses. The cost of the hedge, whether it is the premium paid for an option, or the loss on the wrong side of a futures contract, cannot be avoided.

Despite the temptation to compare hedging and insurance, the latter is much more precise. In the event of a loss, insurance will ensure you are fully compensated (usually minus a deductible). Hedging a portfolio is not a precise science. Things have a habit of going wrong. While risk managers are continually on the lookout for the ideal hedge, implementing it is very difficult.