The specific way is to buy and sell the same commodity in the spot market and the futures market at the same time, that is, buy or sell the spot in the spot market at the same time, and sell or buy the futures of the same commodity in the futures market at the same amount. When commodities are sold in the spot due to price changes, the losses and gains in futures trading can offset each other at this time, so as to minimize the price risk of such commodities, which is the unique hedging function of futures contracts.
Take wheat as an example:
A wheat processing plant plans to buy 100 tons of wheat in March two months later. At that time, the spot market price was 1560 yuan/ton, and the futures price in May was 1600 yuan/ton. Worried about rising prices, the factory bought100t wheat futures.
In May, the spot wheat price really went up.
It rose to 1590 yuan/ton, while the futures market price was 1630 yuan/ton. As a result, the factory bought the spot and lost 30 yuan per ton; At the same time, selling futures in the futures market, making a profit of 30 yuan per ton. In this way, the win and loss of the two markets offset each other, and finally lock in the production cost of the enterprise and realize hedging.
Dear, the above are the answers to your concerns. I hope it will help you and the investment will be smooth!