Commonly known as hedging: refers to the producers and operators to buy or sell a certain amount of spot in the spot market, and at the same time sell or buy futures contracts with the same number of spot varieties but in the opposite direction in the futures market, so as to make up for the losses in another market with the profits of one market, thus avoiding the risk of price fluctuation.

The actual situation will be different:

1: The manufacturer buys raw materials, but it may be vacant for some time. They are worried that falling market prices will increase costs, so they short the futures market to lock in costs.

Traders buy goods and sell spot goods, because they are afraid of falling prices and dare not buy more goods. If the forward contract price in the futures market is higher, they can set up empty orders to purchase boldly.

3. Metal recycling companies recycle old metals, afraid of falling prices, and dare not recycle them in large quantities. After shorting in the futures market, they can recycle a lot according to the number of shorts, without worrying about the market price falling.