On the delivery date, as long as the same amount of physical goods are delivered, even if the price of agricultural products falls, the corresponding amount of funds can still be obtained at the original agreed price, and only a small amount of hedging fees need to be paid.
Hedging, commonly known as "Qin Hai", also known as hedging transaction, refers to the fact that traders sell (or buy) futures trading contracts with the same amount as hedging in the futures exchange while buying (or selling) actual commodities. It is an act of temporarily replacing physical transactions with futures transactions in order to avoid or reduce the losses caused by unfavorable price changes.
The basic characteristics of hedging: at a certain point in time, buying and selling the same commodity in the same quantity but in the opposite direction in the spot market and the futures market, that is, selling or buying the same quantity of futures in the futures market while buying or selling the real thing. After a period of time, when the price changes make the spot trading profit or loss, the losses in the 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.
Theoretical basis of hedging: the trend of spot and futures markets is similar (under normal market conditions), because these two markets are affected by the same supply and demand relationship, and their prices rise and fall together; However, due to the opposite operation and profit and loss of the two markets, the profit of the futures market can make up for the loss of the spot market, or the appreciation of the spot market offsets the loss of the futures market. The trading principles of hedging are as follows:
1. The principle of opposite transaction direction;
2. The principle of similar goods;
3. The principle of equal quantity of commodities;
4. The principle of the same or similar month.
In fact, hedging in the futures market is a kind of venture capital behavior aimed at avoiding the risk of spot trading, and it is an operation combined with spot trading.
In order to better achieve the purpose of hedging, enterprises must pay attention to the following procedures and strategies when conducting hedging transactions.
(1) Adhere to the principle of "equality and relative". "Equivalence" means that the commodities traded in the futures market must be the same as those traded in the spot market in terms of types or related quantities. "Relative" refers to the opposite buying and selling behavior in two markets, such as buying in the spot market, selling in the futures market, or vice versa.
(2) Spot transactions with certain risks should be selected for hedging. If the market price is relatively stable, there is no need to hedge, and the hedging transaction needs a certain fee.
(3) Compare the net risk amount with the hedging cost, and finally determine whether to hedge.
(4) According to the short-term price trend forecast, calculate the expected change of basis (that is, the difference between spot price and futures price), and make the timing plan for entering and leaving the futures market accordingly, and implement it.