This step is the premise of determining whether the stock portfolio needs hedging to avoid risks and what trading direction to take for hedging. Similar to the speculative trading of stock index futures, the prediction of stock market trend is based on the comprehensive analysis of macroeconomic research and industry research. The more accurate the forecast of the stock market trend, the higher the hedging success rate and the lower the opportunity cost.

The second step is to carry out systematic risk measurement and determine whether to hedge.

The purpose of hedging is to avoid systemic risk through reverse operation between spot market and futures market. If the systemic risk of a stock or portfolio is small, the hedging operation of this stock or portfolio often cannot achieve good hedging effect. By measuring the relationship between spot portfolio and futures index or the degree of systemic risk, investors can distinguish whether their own position portfolio is suitable for hedging transactions. If the proportion of systemic risk of portfolio is very small, it is ineffective to adopt hedging strategy, and investors should choose traditional selling method or other better methods to avoid risks.

Step 3: Select the hedging direction.

If investors hold cash and predict that the market will rise in the future, in order to avoid the risk of shorting and reduce the waiting cost, then investors can take long hedging, that is, first buy stock index futures, then gradually buy spot futures and close futures. If investors hold stock positions and predict that the market will fall in the future, in order to avoid systemic risks, they can adopt short hedging strategy, that is, holding stocks and shorting stock index futures.