Hedging transactions Hedging transactions are two transactions related to the market, with opposite directions, the same amount and breakeven. Market correlation refers to the identity of market supply and demand that affects the prices of two commodities. If the relationship between supply and demand changes, it will affect the prices of two commodities at the same time, and the prices will change in the same direction. The opposite direction means that the buying and selling directions of two transactions are opposite, so that no matter which direction the price changes, there is always a profit and a loss. Of course, in order to protect the capital, the number of two transactions must be determined according to the range of their respective price changes, so that the number is roughly the same. In the market economy, there are many kinds of transactions that can be hedged, such as foreign exchange hedging and option hedging, but futures trading is the most suitable one. First of all, because the futures trading adopts the margin system, the transaction of the same size only needs to invest less money, so the cost of doing two transactions at the same time has not increased much. Secondly, futures can be sold short, and virtual hedging of contract liquidation and real hedging of physical delivery can be done. The conditions for completing the transaction are flexible, so the hedging transaction developed rapidly after the birth of futures, a financial derivative. The English-Chinese Dictionary of Securities Investment by the Commercial Press explains: hedging transactions. Also known as carry trade. Name. Trading measures taken to avoid investment losses of financial products. The most basic way is to buy spot and sell futures or sell spot and buy futures, which is widely used in the fields of stocks, foreign exchange and futures. The original intention of hedging or arbitrage trading is to reduce the risk of market fluctuation to investment varieties and lock in the existing investment results, but many professional investment managers and companies use it for speculative profits. Simply hedging speculation is very risky. The other is: hedging. The following takes futures hedging as an example to illustrate its operation method. There are roughly four kinds of hedging transactions in the futures market. One is the hedging transaction between futures and spot, that is, trading in the futures market and spot market with the same number and opposite directions at the same time. This is the most basic form of futures hedging transaction, which is obviously different from other hedging transactions. First of all, this hedging transaction is not only conducted in the futures market, but also in the spot market, while other hedging transactions are futures transactions. Secondly, this kind of hedging transaction is mainly to avoid the risks brought by price changes in the spot market and give up the possible benefits brought by price changes, which is generally called hedging. The purpose of several other hedging transactions is to carry out speculative arbitrage from price changes, which is usually called profit hedging. Of course, the hedging between futures and spot is not limited to hedging, and it is also possible to hedge when the price difference between futures and spot is too large or too small. Just because this hedging transaction needs spot trading, the cost is higher than that of simply doing futures, and some conditions are needed to do spot trading, so it is generally used for hedging. The second is the hedging transaction of the same futures product in different delivery months. Because the price changes with time, the spread of the same futures product in different delivery months forms a spread, and this spread also changes. Excluding the relatively fixed commodity storage cost, the price difference depends on the change of supply and demand. By buying futures varieties for delivery in one month and selling futures varieties for delivery in another month, you can close your position or deliver at a certain time. Due to the change of price difference, two transactions in opposite directions may generate income after breakeven. This kind of hedging transaction is called intertemporal arbitrage for short. Third, hedging transactions of the same futures product in different futures markets. Due to different geographical and institutional environments, the price of the same futures product in different markets at the same time is likely to be different and constantly changing. In this way, you can buy long positions in one market and sell short positions in another market at the same time, and then close positions or deliver at the same time after a period of time, thus completing hedging transactions in different markets. This kind of hedging transaction is called cross-market arbitrage. Fourth, hedging transactions of different futures varieties. The premise of this hedging transaction is that there is some correlation between different futures products, for example, the two commodities are upstream and downstream products, or they can replace each other. Although the varieties are different, they reflect the identity of market supply and demand.