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Futures hedging can be divided into long hedging and short hedging.
Long hedging: a futures trading method in which traders buy futures in the futures market first to avoid causing economic losses to themselves when buying in the spot market in the future. Therefore, it is also called "long hedging" or "short hedging".
Short hedging: also known as selling hedging, refers to a futures trading method in which traders sell futures in the futures market first, and when the spot price falls, the profit in the futures market makes up for the loss in the spot market, thus realizing the value preservation.
In order to prevent the risk of the spot price falling at the time of delivery, short hedging is a trading method of selling contracts equivalent to the spot quantity in the futures market first. Hold short positions to hedge the spot that traders will sell in the spot market. Therefore, selling hedging is also called "short selling hedging" or "selling hedging".
Hedging refers to trading in the futures market in the opposite direction to the spot market in order to avoid the price risk in the spot market, that is, selling the same commodity in the spot market and buying it in the futures market at the same time; On the contrary, the same commodity is bought in the spot market and sold in the futures market. The former is a long hedge and the latter is a short hedge.
For example, in April 2020, Zhu Xiao Electric intends to buy 65,438+000 tons of copper in the spot market three months later. In order to prevent the possible price increase in spot copper in the future, the factory carries out copper forward hedging on the Shanghai Futures Exchange.
The results of hedging are as follows:
April 2020: The spot market copper price is 40,000 yuan/ton, and a factory buys 20 contracts of Shanghai Copper 2007 at a purchase price of 4 1200 yuan/ton;
July 2020: The spot market copper price is 4 1 1,000 yuan/ton, and a factory sells 20 futures contracts of Shanghai Copper 2007 at a selling price of 42,300 yuan/ton.
That is to say, Piggy Electric bought copper in the spot market and spent 4 1000 yuan/ton-40,000 yuan/ton = 1000 yuan/ton, but earned 42,300 yuan/ton -4 1200 yuan/ton =/kloc-0 in the futures market.