What is the basic principle of hedging?
The principle of hedging is to hedge the fluctuation of spot price with the fluctuation of futures price, so as to control the risk. Because there is usually a high correlation between the futures price and the spot price of the same variety, the trend of change between the futures price and the spot price is usually the same and the range of change is similar, so the hedger can hold short futures positions at the same time, or hold long futures positions at the same time.
Hedging has its applicable subject. For ordinary investors, the purpose of investing in futures itself is to make money, and hedging itself is meaningless.
Hedging is most meaningful to the relevant manufacturers of the underlying assets of futures. For example, in order to prevent the price of finished sugar from falling, sugarcane growers can set up positions in the futures market to sell sugar futures. If the price of sugar really falls, although the purchase price in the spot market will decrease, the profit generated by selling futures can hedge some or all of the losses.