It's no use talking too many technical terms.

Then explain it to the landlord in vernacular and examples.

For example, last year's cotton was very enjoyable.

A spinning mill needs to purchase raw materials when the price of lint is 30 thousand yuan to ensure its normal inventory and maintain its normal production.

However, I am also worried that the price of lint will fall, which will damage my own profits.

So this batch of raw materials was sold and hedged in the futures market.

Two months later, the price of lint fell to 27,000. It is difficult to sell yarn at the cost of raw materials.

But we can only sell yarn at a discount, and the spinning mill has suffered a serious loss.

However, the spinning mill kept a list of cotton value preservation in the early stage.

At this time, the spinning mill made a profit of 3000 yuan from a ton of lint in the futures market.

It can almost make up for the spot losses and even make a profit.

In this way, the risk is avoided. ...