The futures market is where these contracts are traded centrally.
Hedging refers to trading in the futures market in the opposite direction to the spot market in order to avoid the price risk in the spot market, that is, selling the same commodity in the spot market and buying it in the futures market at the same time; or vice versa, Dallas to the auditorium There are two forms of hedging, namely short hedging and long hedging.
Example: In July, a power plant planned to buy 65,438+000 tons of copper three months later. In order to prevent the possible price increase in the future, the factory hedged copper on the Shanghai Futures Exchange. The results of hedging are as follows:
Cash market
forward market
July 1
100 tons of copper is needed in October, and the spot market price in July is 66,000 yuan/ton.
Buy 100 lots 10 copper contract at the purchase price of 66 100 yuan/ton.
65438+ 10 month 1
Buy100t copper at a market price of 67,000 yuan/ton.
Sell 100 lot 10 month copper contract at a selling price of 67,200 yuan/ton.
wax and wane
-1000 yuan/ton
+1 100 yuan/ton
As can be seen from the table, the factory pays 1000 yuan per ton of copper in the spot market, but in the futures market, the factory earns 1 100 yuan per ton of copper. Through the operation of the futures market, the factory effectively avoided the risk of the spot market. Because hedging avoids the risk of adverse price changes, it can concentrate on its own production and business activities and obtain normal profits.
This is to ensure the production and operation of spot merchants.