Hedging transaction Hedging transaction is to carry out two transactions at the same time that are related to the market, in opposite directions, of equal quantity, and with profit and loss offsetting. Market correlation means that the market supply and demand relationship that affects the price of two commodities is identical. If the supply and demand relationship changes, it will affect the prices of the two commodities at the same time, and the direction of price changes is generally the same. Opposite direction means that the buying and selling directions of two transactions are opposite, so that no matter which direction the price changes, one will always make a profit and the other will lose. Of course, in order to balance profits and losses, the quantities of the two transactions must be determined according to the magnitude of their respective price changes, and the quantities should generally be equal. In a market economy, there are many types of hedging transactions, such as foreign exchange hedging and options hedging, but the most suitable one is futures trading. First of all, because futures trading adopts a margin system, transactions of the same scale require less capital investment, so the cost of doing two transactions at the same time will not increase much. Secondly, futures can be bought and sold short, and both virtual hedging for contract closing and real hedging for physical delivery can be done. The conditions for completing the transaction are relatively flexible, so hedging transactions only developed rapidly after the birth of financial derivatives such as futures. The Commercial Press' "English-Chinese Securities Investment Dictionary" explains: hedge transaction hedge. Also: arbitrage trade. name. Trading measures adopted to avoid investment losses in financial products. The most basic method is to buy spot and sell futures or sell spot and buy futures, which is widely used in stocks, foreign exchange, futures and other fields. The original intention of hedging or arbitrage trading is to reduce the risks brought by market fluctuations to investment products and lock in existing investment results, but many professional investment managers and companies use it to speculate and make profits. Pure hedging speculation is very risky. Also: hedging. The following uses futures hedging as an example to illustrate its operation method. There are roughly four types of hedging transactions in the futures market. One is the hedging transaction between futures and spot, that is, conducting transactions of equal quantity and opposite direction in the futures market and spot market at the same time. This is the most basic form of futures hedging transaction and is obviously different from other hedging transactions. First of all, this kind of hedging transaction is not only conducted in the futures market, but also in the spot market, while other hedging transactions are all futures transactions. Secondly, this kind of hedging transaction is mainly to avoid the risks caused by price changes in the spot market and to give up the profits that may arise from price changes. It is generally called hedging. Several other types of hedging transactions are for the purpose of speculative arbitrage from price changes, which are generally referred to as hedging profits. Of course, hedging between futures and spot is not limited to hedging. When the price difference between futures and spot is too large or too small, there is also the possibility of hedging profit. It's just that this kind of hedging transaction requires spot trading, which is more expensive than simply doing futures, and requires certain conditions for spot trading, so it is generally used for hedging. The second is hedging transactions of the same futures type in different delivery months. Because prices change over time, the same futures type has different prices in different delivery months, forming a price difference, and this price difference also changes. Excluding relatively fixed commodity storage costs, this price difference is determined by changes in supply and demand. By buying futures varieties for delivery in a certain month, selling futures varieties for delivery in another month, and then closing or delivering the positions respectively at a certain point in time. Due to changes in the price difference, profits and losses may be generated after the profits and losses of two transactions in opposite directions are offset. This kind of hedging transaction is called intertemporal arbitrage. The third is hedging transactions of the same futures type in different futures markets. Because of 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 it is also constantly changing. In this way, by doing long buying in one market and short selling in another market, and then closing or delivering at the same time after a period of time, hedging transactions in different markets are completed. Such hedging transactions are referred to as cross-market arbitrage. The fourth is hedging transactions of different futures varieties. The premise of this kind of hedging transaction is that there is some correlation between different futures varieties, such as the two commodities are upstream and downstream products, or can be substituted for each other, etc. Although the varieties are different, they reflect the same market supply and demand relationship.