Taking advantage of the consistency of price fluctuation and the convergence of near delivery in the futures and spot markets, by establishing hedging positions in the futures market and constructing insurance for the current positions, the market uncertainty can be greatly reduced, so that enterprises can obtain the expected stable income, which is precisely the core content of hedging as a risk transfer mechanism.

If the enterprises holding spot long positions are worried that the current price drop may cause losses to future enterprises, they can hedge by selling in the futures market to avoid the risks brought by the price drop, thus locking in profits. Hold cash

If enterprises with short positions are worried that the future spot price increase may increase the cost of enterprises, they can hedge through the futures market to avoid the risks brought by the price increase, thus locking in the cost.

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. Futures hedging can be divided into long hedging and short hedging.