The operating principle of hedging trading has three major characteristics:

? 1. It can leverage a larger transaction with less funds. People call it the amplification of hedge funds. The effect is generally 20 to 100 times; when the transaction is large enough, it can affect the price;

? 2. According to Lorenz Glitz, since the buyer of the option contract only The right but not the obligation, that is, if the strike price of the option is not favorable to the option holder on the delivery date, the option holder may not exercise it. This arrangement reduces the risk for option buyers and at the same time induces people to make more risky investments (i.e. speculation);

? 3. According to John Hull’s view, the higher the exercise price of the option, the higher the risk. It is a deviation from the spot price of the underlying asset (specific subject matter) of the option. The lower its own price, which brings convenience to the subsequent speculation activities of hedge funds.

Hedging techniques:

1. Long and short positions, that is, buying and selling stocks simultaneously, which can be a net long position or a net short position;

2. Market neutrality, that is, buying stocks with low prices and selling stocks with high prices at the same time;

3. Convertible arbitrage, that is, buying convertible bonds with low prices and selling short at the same time underlying stocks, and vice versa;

4. Global macro, that is, analyzing local economic and financial systems from top to bottom, and buying and selling based on political and economic events and main trends;

5. Managed futures , that is, holding long and short positions in various derivatives.

Hedging transactions: Conducting two transactions at the same time that are related to the market, opposite in direction, of equal quantity, and with profits and losses 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 change 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 gain 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.