Hedging refers to the trading activities in which the futures market is used as a place to transfer the price risk, and the futures contract is used as a temporary substitute for buying and selling commodities in the spot market in the future, so as to insure the prices of commodities to be bought in the future.

2. The basic characteristics of hedging

The basic practice of hedging is to buy and sell the same commodity in the same quantity but in the opposite direction in both the spot market and the futures market, that is, to buy or sell the same quantity of futures in the futures market at the same time. After a period of time, when the price changes make the profit and loss in spot trading even, the losses in futures trading can be offset or compensated. Therefore, hedging mechanisms are established between "now" and "period" and between short-term and long-term to minimize price risk.

3. The logical principle of hedging.

Hedging can preserve the value because the main difference between futures and spot of the same specific commodity lies in the different delivery dates, and their prices are influenced and restricted by the same economic and non-economic factors. Moreover, the futures contract must be delivered in kind when it expires, so the spot price and the futures price also have convergence, that is, when the futures contract approaches the expiration date, the difference between the two prices is close to zero, otherwise there will be opportunities for arbitrage. So before the maturity date, there will be arbitrage. In two related markets, the reverse operation will inevitably produce the effect of mutual cancellation.

Second, the method of hedging

1. Sales hedging of producers

As a provider of social goods, both farmers who provide agricultural and sideline products to the market and enterprises that provide basic raw materials such as copper, tin, lead and oil to the market can adopt the transaction mode of selling hedging to reduce the price risk, that is, selling the same amount of futures as the seller in the futures market to ensure the reasonable economic profits of the goods they have produced or are still selling to the market in the future, so as to prevent the price from falling and suffering losses when they are officially sold.

2. The operator sells the hedging.

For the operator, the market risk he faces is that when the goods are not resold after being acquired, the price of the goods will fall, thus reducing his operating profit and even causing losses. In order to avoid this market risk, operators can use the method of selling hedging to carry out price insurance.

3. The overall hedging of processors.

For processors, market risks come from buyers and sellers. He is worried about rising raw material prices and falling finished product prices, and even more afraid of rising raw material and finished product prices. As long as the materials and finished products that the processor needs can be traded in the futures market, he can use the futures market for comprehensive hedging, that is, buying the purchased raw materials and selling the products, which can relieve his worries and lock in his processing profits, thus specializing in processing and production.

Third, the role of hedging.

Enterprise is the cell of social economy. What, how much and how to produce and operate with their own or mastered resources are not only directly related to the production economic benefits of the enterprise itself, but also to the rational allocation of social resources and the improvement of social economic benefits. The key to the correctness of enterprise's production and management decision lies in whether it can correctly grasp the market supply and demand state, especially whether it can correctly grasp the next changing trend of the market. The establishment of the futures market not only enables enterprises to obtain the supply and demand information of the future market through the futures market, but also can improve the health of students.

The scientific rationality of production and operation decision-making has really achieved the demand-based production, which provides a place for enterprises to avoid market price risks through hedging and plays an important role in improving the economic benefits of enterprises.

Fourth, hedging strategy.

In order to better achieve the purpose of hedging, enterprises must pay attention to the following procedures and strategies when conducting hedging transactions.

(1) Adhere to the principle of "equality and relative". "Equivalence" means that the commodities traded in the futures market must be the same as those traded in the spot market in terms of types or related quantities. "Relative" refers to the opposite buying and selling behavior in two markets, such as buying in the spot market, selling in the futures market, or vice versa.

(2) Spot transactions with certain risks should be selected for hedging. If the market price is relatively stable, there is no need to hedge, and the hedging transaction needs a certain fee.

(3) Compare the net risk amount with the hedging cost, and finally determine whether to hedge.

(4) According to the short-term price trend forecast, calculate the expected change of basis (that is, the difference between spot price and futures price), and make the timing plan for entering and leaving the futures market accordingly, and implement it.