In 2008, the turbulent capital market gave all participants a financial lesson of risk education. In the roller coaster year of commodity bull and bear market, most spot enterprises lost money, but some hedging enterprises made profits.
The successful case of domestic market hedging tells us that the logic of hedging is correct as long as we follow three principles and judge the general trend clearly; The net position is moderate; If the advance amount of hedging is properly grasped, whether it is a bull market or a bear market, enterprises can effectively avoid the risk of price changes.
In order to achieve a better hedging effect, it is necessary to abandon the principle of "equal quantity of goods" and establish a position in the futures market that is not equal to the spot inventory under the condition of accurate judgment of the general trend.
The traditional concept of hedging lacks institutional norms and hedging rules.
Hedging is also translated as "hedging transaction", and its purpose is to avoid the risk of spot price fluctuation. Traditional hedging means that producers and operators buy or sell a certain number of spot commodities in the spot market, and at the same time sell or buy commodity futures contracts of the same variety and quantity in opposite directions in the futures market, so as to hedge their positions and settle the profits or losses brought by futures trading at a certain time in the future, thus compensating or offsetting the actual price risks or interests brought about by price changes in the spot market and stabilizing the economic interests of traders at a certain level.
However, the case of hedging failure tells us that this traditional hedging concept misleads many enterprises actively participating in hedging. In the traditional sense, the concept of hedging has neither institutional norms nor hedging operation rules, and the thick-line hedging idea can no longer effectively avoid the risk of price fluctuation. On the contrary, these enterprises have been pushed into the dangerous team of "crossing the river by feeling the stones".
Wrong grasp of the general trend and improper hedging position lead to hedging failure.
Let's analyze four different hedging cases in 2008.
In the case of the first hedging loss, although the hedging enterprises in Guangdong completely abide by the traditional hedging principle, they still adopt the hedging scheme of 1: 1 due to the misjudgment of the general trend, even though the spot price has been greatly different from the target hedging futures price, which leads to the inability to effectively protect all the spot.
In the second case, an enterprise in Tianjin showed a more accurate operation idea of grasping the general trend. At that time, oil prices were on the rise, and spot sales were relatively easy. Tianjin oil enterprises have established many short positions in the futures market that are less than the spot inventory. Due to the failure to establish full hedging, the loss of enterprises in the futures market is less than the profit in the spot market. Judging from the final hedging effect, the enterprise has achieved profitability.
In the third case, although an enterprise in Shandong has accurately grasped the general trend and realized the arrival of the bear market, because they only hedged 60% of the inventory in the futures market, it was difficult to sell the spot at that time during the period of accelerated price decline, and the other 40% of the inventory was exposed to risks. The short position in the futures market only evaded some inventory risks for the enterprise, and finally the enterprise suffered undue losses.
In the fourth case of successful hedging, this enterprise in Hebei not only saw the general trend of taking the bear, but also established a short position in the futures market that was larger than the spot inventory. When it is difficult for an enterprise to sell its inventory at the current market price, in order to settle the transactions in the two markets at the same time, it is better to gradually digest the inventory at a price lower than the market price. In addition to the break-even part of the two cities, the excess part of hedging positions established by enterprises in the futures market has brought them excess returns.
Three elements of successful hedging: general direction, advance amount and net position.
It is not difficult to see that case 4 belongs to a successful hedging case, and its successful experience has three points: the enterprise has a clear judgment on the general trend, the hedging logic is correct, the action is ahead of schedule, and the hedging net position is reasonable. In particular, a reasonable net position ensures that hedging will eventually achieve profitability.
Therefore, the new definition of futures hedging we discussed can include three aspects, which can also be called the three principles of hedging success:
First, the principle of general trend logic. It means that there is a correct judgment on the current general trend and the logic of hedging is correct;
Second, the principle of net position. Take the enterprise's participation in selling hedging as an example: in the bull market, the hedging quantity sold by the enterprise in the futures market is less than its inventory at that time, which makes the net position of the enterprise (inventory quantity-futures position quantity >; 0) is the spot network. In a bear market, the amount of hedging sold by an enterprise in the futures market is greater than its inventory at that time, that is, the net position of the enterprise (futures positions-inventory >; 0) Futures clearance, so that the profit in the futures market is far greater than the loss in the spot market because the short futures position held by the enterprise is greater than its inventory. The establishment of net position is not only a breakthrough to the traditional hedging theory, but also the key to the implementation of the new hedging theory.
Third, the principle of advance. The premise is that on the basis of the general trend judgment, the purchase amount will change accordingly, and then the futures value will be adjusted accordingly. If you think that the price will rise, then enterprises can purchase the goods they need for a longer time in the future, and at the same time hedge the futures in advance; It is believed that the downward trend of prices is the opposite. By the time the value is urgently needed, it is likely that the opportunity for value preservation has been lost.
To sum up, it is not difficult to see that for spot enterprises involved in hedging, hedging logic, lead amount and net position complement each other and are indispensable in the process of hedging.
Doing futures is often considered as speculation by the market. In fact, just engaging in spot trading is also a kind of speculation. We believe that in the face of the turbulent commodity market, as long as spot traders firmly grasp these three factors, whether it is a bull market or a bear market, enterprises can effectively avoid the risk of price changes, ensure stable profits, and even obtain excess returns.
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