I. Definition of hedging
Hedging in a broad sense refers to the way in which an enterprise trades one or more instruments in the hope of hedging all or part of the price risks it faces. In this definition, hedging transactions choose a wide range of instruments, mainly including derivatives such as futures, options, forwards and swaps, and other possible non-derivative instruments. Hedging with stock index futures refers to the way that investors hedge the price risk by holding stock index futures contracts that are opposite to their stock market positions, or using stock index futures contracts as substitutes for their stock market futures trading. Through stock index futures hedging, investors can realize the value of their own stocks or lock in the cost of buying stocks in the future.
Second, the types of stock index futures hedging
The purpose of stock index futures hedging is to avoid the risk of price fluctuation, and the price change is nothing more than falling and rising. Accordingly, hedging is divided into two types: one is to avoid the risk of stock price decline, which is called selling hedging; The other is to avoid the risk of future stock price rise, which is called buy hedging.
Selling hedging means that the hedger hedges the risk of falling stock prices that he currently holds or will sell in the future by establishing short positions in the stock index futures market. The operation of selling hedging is mainly applicable to the following situations: first, investors holding stocks are worried that the market price will fall and the market value of their stocks may fall; Second, investors who have bought future settlement stocks at a fixed price are worried about the future market price decline.
Buying hedging means that the hedger hedges the price rise risk of the stock he will buy in the future by establishing long positions in the stock index futures market. The operation of buying hedging is mainly applicable to the following situations: first, it is expected to buy stocks in the future, and the buying price has not yet been determined, fearing that the market price will rise and increase its buying cost; Second, holding a short position, fearing that its future price will rise, which will increase the cost of securities repayment.