The basic principle of hedging is to set up opposite positions by buying and selling futures contracts to offset the price fluctuations in the spot market. For example, if a manufacturer expects to deliver a certain number of products next month, he can sell the corresponding futures contracts in the futures market to lock in the future price. If the price rises, the spot market cost of the manufacturer will also rise, but the profit of selling futures contracts in the futures market can offset this rising cost, thus achieving the purpose of risk management.
The key of hedging strategy is to choose the right futures contract, the right position, the right time and the right quantity. If the selected futures contract is different from the spot market variety, or the delivery month corresponding to the futures contract is inconsistent with the actual demand, the hedging effect will be reduced or even invalid. Therefore, for every practical operator, it is necessary to carefully consider the market situation and trading conditions in order to formulate the optimal hedging strategy.
The risk management effect of hedging strategy is closely related to the current market structure, investor psychology, capital flow and other factors. If the market is in a sharp rise and fall, the cost of hedging may be high, even exceeding the actual loss of the market. In this case, investors need to calculate the risk-loss ratio, weigh the risk-return of hedging and continuing to hold, and make reasonable decisions.
In a word, hedging strategy is an important risk management tool, which can help all parties reduce transaction risk, market risk and cost risk. By using the futures market correctly, we can better cope with market changes and risks and make trading more efficient, effective and stable.