This column describes how to control risk through the use of financial futures and forward contracts. I begin with a discussion of the valuation of futures and forward contracts. Then I describe how they can be used to change the asset mix of a portfolio without disrupting the underlying assets. Next, I show how to hedge away the systematic risk and extract the alpha from an actively managed portfolio of short and long positions. I also describe how to remove the currency risk of an internationally diversified portfolio, and demonstrate why full hedging is not necessarily optimal, even independent of any consideration about hedging costs. Finally, I show how to evaluate the tradeoff between the cost of hedging and risk reduction.