In a declining market, stock index futures can be used to hedge a stock portfolio to help offset losses in the portfolio.

Question

Quizplus · Accepted Answer

If an investor thinks the market is going down, he will sell a futures contract and hope the market will decline so that the contract can be closed out (repurchased) at a lower value than the sales price. Selling futures contracts can also be used to hedge a large stock portfolio. If the market goes down, what you lose on your portfolio can be recouped in your futures contract.

In a Declining Market, Stock Index Futures Can Be Used