Forward contracts and futures contracts can be used for hedging. Sometimes its more appropriate to use a forward contract instead of a futures contract. There are times when its appropriate to use a futures contract instead of a forward contract.

You are the director of hedging for Acme Candy Firm, Inc. Your firm purchases sugar and cocoa for the candy products your firm produces.

1. What are three reasons to use futures contracts instead of forwards to hedge commodities?

2. Explain why the above three reasons are an added value to use futures instead of forwards.