Buying hedging means that traders buy futures in the futures market first, so that they will not cause economic losses when buying spot in the spot market in the future.
For example, a copper processing factory signed a supply contract for 100 tons of copper wire on February 2, and delivered it on May 26, with a price of 67,000 yuan/ton. According to the cost accounting and production plan, the processing cycle is about 1 month, and 100 tons of electrolytic copper must be prepared in late April, and the processing cost is about 6000 yuan/ton, so the price of electrolytic copper is not higher than 6 1000 yuan/ton. Worried about the rise in copper prices, I used the futures market to buy hedging, and bought 20 lots of July copper futures contracts at the price of 63,500 yuan/ton that day. By April 26th, the contract price of copper futures rose to 65,500 yuan/ton in July, and a copper processing factory sold all 20 lots of copper futures and closed its position, at the same time, it bought100t at 63,000 yuan/ton in the local spot market.
The transaction is as follows:
Cash market
forward market
2 February
Spot price 6 1000 yuan/ton
The futures price is 63,500 yuan/ton.
Build multiple warehouses 10 lot
April 26(th)
Spot price is 63,000 yuan/ton
Purchase spot100t.
The futures price is 65,500 yuan/ton.
Pingduocang 20 hands
Note: In the above example, due to the rising price of electrolytic copper, the cost of buying electrolytic copper from the spot market at the current price increased by 200,000 yuan, while the futures market gained 200,000 yuan through hedging, thus completely making up the loss of the spot market with the profit of the futures market, preserving the value and locking in the production cost of the enterprise.
2. Use sales hedging to avoid sales risks.
Selling hedging means that traders sell futures in the futures market first, and when the spot price falls, the profit in the futures market makes up for the loss in the spot market.
For example, a copper smelting enterprise will sell electrolytic copper100t in late June according to the production plan on May 5th of a certain year. At this time, the market price is 62,500 yuan/ton, and the contract price of copper futures in July is 63,000 yuan/ton. Due to market expectations, the company is worried that the current copper price will fall in a month. Therefore, the factory used the futures market as a selling hedge to sell 20 lots of July copper at a futures price of 63,000 yuan/ton. On June 28th, the selling price of copper futures fell as scheduled, reaching 59,500 yuan/ton, and the copper futures price in July was 60,000 yuan/ton. So the company bought all 20 lots of copper futures to close the position and sell the spot at the current price.
The transaction is as follows:
Cash market
forward market
May 5
Spot price is 62,500 yuan/ton.
The futures price is 63,000 yuan/ton.
Build an empty warehouse with 20 hands.
June 28(th)
Spot price is 59,500 yuan/ton.
Sell100t electrolytic copper.
The futures price is 60,000 yuan/ton.
20-hand flat empty warehouse
Note: In the above example, due to the falling price of electrolytic copper, the company's income from selling electrolytic copper in the spot market at the current price decreased by 300,000 yuan, while hedging short positions in the futures market gained 300,000 yuan, which completely compensated for the loss in the spot market with the profit in the futures market, thus maintaining the value and stabilizing the company's sales profit.
3. Improve the efficiency of enterprise funds.
Because futures trading is a kind of margin trading, only a small amount of money is needed to control a large number of commodities and speed up the turnover of funds. For example, in the first case, according to the trading regulations of gold futures contracts in Shanghai Stock Exchange, the trading margin for buying and selling futures contracts is 7%, and enterprises only need to use 63,500 * 20 * 5% = 63,500 yuan, plus at most 4% of the funds as anti-risk funds for futures trading, and the remaining 89% of the funds can be accelerated within one month, which not only reduces the storage cost, but also reduces the occupation cost.
4. It is conducive to the smooth signing of the spot contract.
For example, in the first case, if an enterprise needs to sign a supply contract in late April in February, facing the expectation of rising copper prices, the supplier will definitely not agree to sign a supply contract in April at the spot price in February, but hopes to sign a contract at the spot price in April. If the enterprise insists on the original opinion blindly, it will inevitably lead to the breakdown of negotiations and the supply of raw materials for the enterprise cannot be guaranteed. If the enterprise does buy hedging, it will agree to the transaction smoothly according to the supplier's opinion, because if the price really goes up, the enterprise can make up for the loss in the spot market with the profit in the futures market. In the same way, as in the second example, if the enterprise has done selling hedging, it will not worry that the copper demander will demand the spot price at the time of future delivery as the transaction price.
5. Conducive to enterprise financing and expansion of production and operation.
Participating in hedging can enable enterprises to avoid the risk of product price fluctuation and thus obtain stable operating income. In foreign mature markets, whether enterprises participate in futures hedging is an important reference index for relevant financial institutions when considering issuing loans. The reason is that financial institutions are of course willing to provide financing support for business projects that have been hedged and have stable profitability. At the same time, enterprises can accurately predict the benefits of operating projects and appropriately expand the scale of production and operation, thus improving the overall profit level of enterprises. In China, although the futures market is in the development stage, more and more enterprises will participate in futures hedging, which will be the development trend.
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