What is hedging in FNO? How can a hedged position be created?

Hedging is buying and selling Futures contracts to offset the risks of changing underlying market prices. Thus, it helps in reducing the risk associated with exposures in the underlying market by taking a counter position in the Futures market.
In order to hedge a position, the hedger needs to take an equal and opposite position in the FNO market to the one held in the Cash market. There are two types of hedges – short and long.

In a short hedge, one takes a short FNO position to offset an existing long position in the Cash market. In a long hedge, one takes a long FNO position to offset an existing short position in the Cash market.

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