Question

Earlier this year, oil prices crashed into negative territory.
Briefly give an example of how hedging using futures contracts could have benefited investors during this crisis.

Answer 1

For investors who already have oil barrels with them, they can go short hedging in a futures contract before the crash, in such case even if the market crashed towards their expiry, they will be able to sell the oil barrels at the rate of futures contract which will be higher than the spot rate.

Similarly for buyers who want buy the oil barrels, they can purchase the futures contract when the market crashed for a much lower price which makes them able to purchase the barrels at lower price even if the prices went up towards the expiry of the contract.