Hedging can generally offset the risk of price fluctuation in the spot market, but it cannot completely eliminate the risk, mainly because of the "basis difference" factor. In order to deeply understand and apply hedging and avoid price risk, we must master the foundation and its basic principles. Basis basis means the difference between futures prices.

Hedging in the futures market is actually a kind of venture capital behavior aimed at avoiding the risk of spot trading, and it is also an operation combined with spot trading. Establish hedging mechanisms between "now" and "period" and between short-term and long-term to minimize price risks.

The role of hedging in the production and operation of enterprises;

Determine the purchase cost and ensure the profit of the enterprise. The supplier has signed a spot supply contract with the buyer for future delivery, but at this time, the supplier does not need to buy the materials required by the contract. In order to avoid the price increase when purchasing raw materials in the future, we can lock in profits by buying related raw materials in futures.