A hedging transaction that meets a host of conditions for qualification as bona fide hedge. The transaction must (1) represent a substitute for a physical position, currently existing or forecasted to come into existence in the future, (2) provide for risk reduction in an economic sense, and (3) qualify as enumerated hedge. Examples of enumerated hedging positions are: hedges of inventory and cash commodity purchase contracts, hedges of cash commodity sales contracts, hedges of unsold anticipated production, hedges of offsetting unfixed-price cash commodity sales and purchases, etc.

Bona fide hedging positions are exempt from the so-called position limits, imposed by exchanges. However, such positions are subject to the “economically appropriate test”- a test that assesses whether a position is “economically appropriate to the reduction of risks in the conduct and management of a commercial enterprise”. Additionally, exchanges may, at own liberty, impose general orderly trading requirement on all market participants.