First, the significance of hedging
In recent years, cases of huge losses caused by hedging have been frequently seen in the media, and many people in the society have doubts about the role and effect of futures hedging. In fact, most of these situations are not hedging transactions, but speculative transactions. When evaluating the hedging effect, we should make a comprehensive evaluation from two markets, rather than unilateral spot or futures profit and loss. The purpose of hedgers participating in futures trading is not to get high profits from futures trading, but to make up for the possible losses in the spot market with the profits from futures trading, or to make up for the losses in the futures market with the profits from the spot market, so as to control the overall profit and loss balance within the set range.
Second, what hedging strategies do enterprises have?
Hedging theory is analyzed from the origin, and its early stage mainly comes from Keith and Hicks' viewpoint 00-300. People think that hedging is a habitual behavior of commodity producers to avoid the price risk in the spot market. The direct motive of hedging transaction is to transfer the price risk faced in spot trading, and its goal is to ensure the profit in spot operation. Basis refers to the difference between the spot price of the hedged asset and the price of the futures contract used for hedging. Basis hedging strategy is also called selective hedging strategy. Some scholars believe that the goal pursued by investors is to maximize profits, not to minimize risks. Therefore, the difference between spot price and futures price is defined as basis, and whether to hedge is judged according to basis.
Third, the direction of the final hedging strategy is very important. Once the direction is wrong, the risk of the whole enterprise may double.