First of all, financial derivatives are indeed produced for risk hedging. But this is based on the premise that you have something that can be traded in kind. There are many financial derivatives, including options, futures, forwards, swaps and portfolio exotic options. Let's take futures as an example. But it should be noted that options and futures are not the same thing.

I don't know how much you know about financial derivatives. If there are few, it will still be more troublesome to explain. Let me say something popular, you can try to understand:

Futures is a tool to avoid risks, so as to avoid future commodity prices rising or falling. Why do you say that? What are the characteristics? Let me go on.

For example, you are a farmer and you grow corn, but when the harvest is good, the price tends to fall, and when the harvest is not good, the price will rise (according to the relationship between supply and demand in economics, of course, it is more than that, but I will try to simplify it). So this crop is inseparable from the weather, so in order to avoid the loss of next year's harvest season, you can go to the futures exchange to buy a futures contract.

It will probably involve several items: the expiration date of the contract, the final exercise price and so on. If you think it is appropriate to sell corn at 100 yuan a ton next year, you can sign a contract with others to ensure that you can sell corn at 100 yuan this time next year. Of course, if the corn falls badly this time next year, you will make a profit. If corn appreciates this time next year, you can only sell it to others at the price of 100.

Seeing this example, can you find the following?

1. Avoid risks: When the corn price drops to 50 next year, you can definitely sell 100 yuan, so as to prevent the risks brought by the price drop.

2. High risk: Imagine that the price of corn will go up wildly next year, for example, one ton in 200 yuan, and you still have to sell it at 100 yuan. Do you think you have lost a lot?

Some people here will ask, if we look at the second situation just now, then the risk is really great. Isn't this contradictory to avoiding risks? No contradiction! ! !

Because you set a price of 100 yuan, which is what you think you can afford. 100 yuan includes your fertilizer money, labor costs, seed money, etc. Of course, you also count your profits. So you sell corn 100 yuan, no loss. It's just that the price of corn goes up, and you earn less.

I want to know how much you understand.

After that, if you understand all the above, you don't have to read it. Just introduce other methods and more dangerous situations.

Generally, options are used as a tool to hedge risks, and you can master the decision of buying or selling only by paying a certain option fee. For example, if you buy an option and sell corn at 100 yuan, when the price of corn falls to 50 yuan, you can sell it at 100 yuan, and you will make a profit. When the price of corn rises to 200, you can choose not to sell it and sell it to the market, so you can still make a profit.

Then someone will ask, wow, won't this deal lose money? Of course there are risks. If the corn price fluctuates very little, you will lose the option fee for nothing. I think the example is that you have something in your hand.

Many people just gamble. For example, some people spend a lot of money to buy corn warrants, and then want to sell warrants to earn the difference when corn prices rise. If the price of corn goes up, no problem, you can earn a lot. But if the price of corn falls, your warrant is worthless, and you can only lose money without physical transaction.

It is best to read books related to financial engineering, so as to understand the concept of derivatives well. My level is too limited to simply say such a complicated thing. Ashamed, I won't introduce anything else here. You will find it interesting to enter the financial field.