When an enterprise initially participates in hedging, it must first establish a mapping of spot demand to futures demand, and then design specific content. The basic hedging strategy can be simply described as the following three models.

(1) Net position management model

This is a full-process hedging model for net spot positions. This type of model achieves hedging in full against the net position (absolute total spot amount), and is a type of risk minimization in risk portfolio returns. This type of model is often used by large international trading groups. Because the industry status and long industrial chain have given these companies monopoly profits, they are not worried about profits, but only about systemic risks: one is price trend risk, the other is Spot scale risk, also known as full hedging, leaves no exposure to price risk.

(2) Half-way hedging model

When the risk scale is relatively small, the price can be divided into two to distinguish between rising and falling. In the process of rising , mainly focusing on buying hedging, because rising prices will bring raw material procurement risks, while during price declines, selling hedging can be done. To do half-way hedging, we must work hard in two aspects. The first is to determine the price trend (trend research), and the second is to determine whether the futures price is high or low relative to the spot price (basis research). It is necessary to consider both price trends and basis differences. The half-way hedging model is generally used by small and medium-sized trading companies.

(3) Dynamic inventory management model

This model is a dynamic inventory management model that takes into account position size, price trend and basis (spot price - futures price). The focus of traditional hedging is to minimize risks without considering maximizing corporate benefits. Through reverse hedging on futures, the company's net inventory is reduced to zero, thereby achieving the purpose of hedging. However, zero market risk does not mean that the company has no losses, because in daily business activities, the company's operating costs are also very high. No matter how the market fluctuates, a minimum business scale must be guaranteed. Therefore, for every enterprise, it is necessary to maintain a baseline inventory during daily operations.

The basis is the difference between the spot price and the futures price. In practice, changes in basis have a more obvious impact on the hedging effect, and also bring certain risks. Therefore, basis risk must be considered during the hedging process.

For the sell hedge to be fully protected and net profitable, the basis needs to strengthen. Likewise, for the buy-to-cover to be fully protected and there to be a net profit, the basis needs to weaken.