1. Basic principles of hedging 1. The concept of hedging: Hedging refers to the trading activities that take the futures market as the place to transfer the price risk, take the futures contract as a temporary substitute for buying and selling commodities in the spot market in the future, and sell commodities after buying now or insure the prices of commodities bought in the future. 2. Basic characteristics of hedging: The basic practice of hedging is to buy and sell the same commodity in the spot market and the futures market at the same time in the same quantity but in the opposite direction, that is, to buy or sell the same quantity of futures in the futures market at the same time. After a period of time, when the price changes make the profit and loss in spot trading even, the losses in futures trading can be offset or compensated. Therefore, hedging mechanisms are established between "now" and "period" and between short-term and long-term to minimize price risk. 3. Logical principle of hedging: Hedging can be hedged because the main difference between futures and spot of the same specific commodity lies in the different delivery dates, and their prices are influenced and restricted by the same economic and non-economic factors. Moreover, the futures contract must be delivered in kind when it expires, which makes the spot price and futures price converge, that is, when the futures contract approaches the expiration date, the difference between the two prices is close to zero, otherwise arbitrage will occur. In two related markets, the reverse operation will inevitably produce the effect of mutual cancellation. 2. The method of hedging 1. Selling hedging of producers: As a supplier of social goods, both farmers who provide agricultural and sideline products to the market and enterprises that provide basic raw materials such as copper, tin, lead and oil can adopt the trading of selling hedging to ensure that the goods they have produced or will sell to the market in the future can obtain reasonable economic profits in the production process and prevent losses caused by possible price drop when they are officially sold. 2. The operator sells hedging: For the operator, the market risk he faces is that the price of the goods falls after purchase but is not resold, which will reduce his operating profit and even cause losses. In order to avoid this market risk, operators can use the method of selling hedging to carry out price insurance. 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 materials and finished products that the processor needs can be traded in the futures market, he can use the futures market for comprehensive hedging, that is, buying the purchased raw materials and selling the products, which can relieve his worries and lock in his processing profits, thus specializing in processing and production.