Principle: (1) The futures price trend of the same commodity is consistent with the spot price trend.
The futures price and spot price of commodities are influenced and restricted by the same economic factors in the same market environment, but generally speaking, the price changes in the two markets are the same. Hedging is to use the price relationship between these two markets to get the result of losing money in one market and making profits in the other.
(b) The spot market and the futures market are approaching the expiration date of the price futures contract, and they tend to be consistent.
The delivery system of futures trading ensures that the prices of spot market and futures market tend to be the same as the expiration date of futures contracts approaches.
(c) Hedging is to replace the larger spot price fluctuation risk with a smaller basis risk.
Hedgers participate in the futures market in order to avoid the risk of large price changes in the spot market and accept relatively small risk of basis changes.
Principle: (1) the principle of similar goods.
The principle of the same commodity type means that when hedging transactions, the selected futures commodities must be the same as the spot commodities that the hedger will buy or sell in the spot market. When doing hedging transactions, we must follow the principle of similar commodities, otherwise, hedging transactions will not only avoid price risks, but will increase the risk of price fluctuations.
Principle of equal quantity of goods
The principle of equal quantity of commodities means that the number of commodities included in the selected futures contract must be equal to the number of commodities to be bought and sold in the spot market when hedging transactions are carried out. The reason why hedging transactions must adhere to the principle of equal quantity of commodities is because only by maintaining the transaction can we adhere to the principle of equal quantity of commodities, because only by maintaining the equal quantity of commodities bought and sold in two markets can the profit of one market be equal to or closest to the loss of the other market.
(3) the principle of the same or similar month
The same month or near month principle means that when hedging, the delivery month of futures contracts should be the same as or close to the time when traders actually buy or sell spot goods in the spot market in the future.
(4) the principle of opposite transaction direction
It means that when doing hedging transactions, the hedger must take opposite trading actions in the spot market and the futures market at the same time or in a similar time, that is, the reverse principle, so that traders can make losses in one market and make profits in the other market at the same time, and make up for the losses in the other market with the profits in one market to achieve the purpose of hedging.
The four operating principles of hedging transactions are: any hedging transaction must be considered at the same time, and ignoring any one of them will not affect the effect of hedging transactions.
Application of hedging
The risk of price fluctuation faced by production and operation enterprises can finally be divided into two types: one is worried about the future price increase of a certain commodity; The other is worrying that the price of a commodity will fall in the future. Therefore, hedging in the futures market can be divided into two basic operating modes, namely, buying hedging and selling hedging.
Buying hedging means that the hedger first buys the commodity futures contracts with the same quantity and the same or similar delivery date in the futures market, that is, buys and holds long positions in the futures market in advance. Then when the hedger buys the contract of spot goods in the spot market, he will further hedge the transaction of buying spot goods in the spot market.
Applicable object and scope; First, in order to prevent the future price of raw materials from rising, processing and manufacturing enterprises. Second, the supplier has signed a spot supply contract with the buyer to deliver the goods in the future, but the supplier has not purchased the goods at this time, fearing that the price will rise when purchasing the goods in the future. Third, the demand side thinks that the current spot market price is very suitable, but due to insufficient funds or foreign exchange, or the goods that meet the rules can't be found at the moment, or the warehouse is full, it can't buy the spot immediately, and it is worried that the price will rise when buying the spot in the future. The safe way is to buy a hedge.
Selling hedging refers to the futures contract in which the hedger first sells the spot goods with the same quantity and the same or similar delivery date in the futures market. Then, when the hedger actually sells spot goods at the same time or before and after the spot market, he hedges in the futures market, buys the futures contract he originally sold, and ends the hedging transaction, thus realizing spot hedging for him in the spot market. Because it first establishes a short trading position in the futures market, it is also called short hedging or short hedging.
Applicable object and scope; First, manufacturers, agricultural factories, factories, etc. For those who directly produce commodity futures, there are products in stock that have not been sold or will soon be produced to harvest some commodity futures, and they are worried that the price will fall when they are sold in the future. Second, the storage and transportation companies and traders have inventory that has not been sold, or the storage and transportation companies and traders have signed a contract to buy a commodity at a certain price in the future but have not resold it, fearing that the price will fall when they sell it in the future. Third, processing and manufacturing enterprises are worried about the falling prices of raw materials in stock.