Hedgers are those who reduce risk by giving up some potential benefits. Hedgers are trading positions that reduce risk exposure. The same person is a speculator in the face of risk exposure and a hedge in the face of other risks.
Its characteristics: production, operation or investment activities face greater risks, which directly affect the stability of its income or profit. Strong sense of risk aversion, hoping to use the futures market to avoid risks. The scale of production, operation or investment is large, and it has certain financial strength and operating experience. In the hedging operation, the futures contract position held is relatively stable and kept for a long time.
The method of hedging is as follows:
1. Sales hedging of producers: whether it is a farmer who supplies agricultural and sideline products to the market or an enterprise that supplies basic raw materials such as copper, tin, lead and oil to the market, as a supplier of social goods, in order to ensure that they have produced and are ready to provide them to the market or are still in the process of production, they will sell their goods to the market at a reasonable economic profit in the future.
In order to prevent the price from falling when it is officially sold, we can reduce the price risk by selling and hedging, that is, selling the same amount of futures as the seller in the futures market as a means of hedging.
2. Hedging of the operator's selling period: For the operator, the market risk he faces is that when the goods are not resold after purchase, the price of the goods will fall, thus reducing his operating profit and even causing losses. In order to avoid this market risk, operators can carry out price insurance by selling and hedging.
3. Comprehensive hedging of processors: For processors, market risk comes from buying and selling. He is worried about rising raw material prices and falling finished product prices, and even more afraid of rising raw material and finished product prices. As long as the raw materials and finished products that the processor needs can enter the futures market for trading, he can use the futures market for comprehensive hedging, that is, buying raw materials and selling products, which can alleviate his worries and lock in his processing profits, thus specializing in processing and production.