Financial theory does not provide a complete framework to explain risk management in the fluctuating financial environment in which the firm operates. Therefore, business managers consider risk management to be one of the top priorities. One of the strategies to reduce risk is hedging. This paper will discuss the advantages and disadvantages of hedging risk using financial derivatives. Coverage depends on various reasons. For example, if a manager wants to minimize corporate taxes, he will cover the taxable income. Stulz (1984) and Smith and Stulz (1985) indicate that progressive tax rates and consequently convex tax regimes cause the firm's expected tax liability to increase with the variance of taxable income, indicating that hedging increases the value of the firm. the company by decreasing the present value of future tax liabilities. If the primary concern of corporate managers is to reduce the costs of financial distress and if the manager can faithfully communicate the company's probability of default, the manager's strategy will focus on the market value of debt and equity. Hedging risk has two sides, such as advantage and disadvantage. The main benefit of hedging is to help reduce the risk of financial difficulties that the business may face and helps the business to insure against adverse events that could lead to financial difficulties, such as: inflation, exchange rate volatility and changes of interest rates. Furthermore, it could protect the firm from distress to the extent that the reduction in distress costs exceeds the cost of hedging, which will increase the firm's value. The second benefit would be a greater amount of money generated by the business being protected; hedging can actually reduce firms' value-to-GDP ratio and increase their level of debt capacity (Kale and Noe, 1990). The company w...... half of the paper ......sk is also preferable. (Tufano, 1996) stated that most companies protect themselves from gold price risk in order to smooth out the revenues they will receive from production. Furthermore, there are also companies that use commodity price risk to protect themselves from the price of raw materials in their inputs. In this case, Hershey's can use cocoa futures contracts to reduce uncertainty about future costs. In conclusion, risk hedging with financial derivatives can offer a number of benefits such as a lower probability of having financial difficulties, a lower value of the debt ratio and debt. earn tax benefits. It can be concluded that the firm should hedge the risk using financial derivatives because the evidence shows that the firm that uses this strategy is more successful than those that do not. However, because different types of companies face different risks, they should not necessarily use the same hedging strategy.