There are two main types of investors who really need to hedge:
First, investors who need to hold stock portfolios for a long time. They need to hedge to prevent future share prices from falling.
The other is investors who need to make forward operations on stock positions, and hedge their positions in the futures market in order to prevent adverse price changes when they trade at maturity.
In short, in order to avoid systemic risks in future operations, portfolio investors need to hedge.
Basic methods of hedging stock index futures;
1, buy hedge
Investors want to buy stocks (portfolios) in the future. In order to prevent the increase of payment cost caused by the price increase when actually buying stocks (portfolios), they buy stock index futures in the futures market. If the price really rises, the overpaid cost can be offset by the profit of the long position of stock index futures, thus locking the actual buying cost at the initial price level.
2. Sales hedging
Investors will hold stocks (portfolios) in a certain period of time in the future. In order to prevent losses caused by falling stock prices, they will sell stock index futures contracts in the futures market. If the price really falls, the loss of spot can be compensated by the profit of stock index futures trading.