General hedging is to conduct two transactions at the same time, both related to the market, in the opposite direction, with the same amount and breakeven. Market correlation refers to the identity of market supply and demand that affects the prices of two commodities. If the relationship between supply and demand changes, it will affect the prices of two commodities at the same time, and the prices will change in the same direction.
The opposite direction means that the buying and selling directions of two transactions are opposite, so that no matter which direction the price changes, there is always a profit and a loss. Of course, in order to protect the capital, the number of two transactions must be determined according to the range of their respective price changes, so that the number is roughly the same.
Extended data:
Hedging transaction between futures and spot, that is, trading in the futures market and spot market with the same number and opposite directions at the same time, is the most basic form of futures hedging transaction, which is obviously different from other hedging transactions.
First of all, this hedging transaction is not only conducted in the futures market, but also in the spot market, while other hedging transactions are futures transactions.
Secondly, this kind of hedging transaction is mainly to avoid the risks brought by price changes in the spot market and give up the possible benefits brought by price changes, which is generally called hedging. The purpose of several other hedging transactions is to carry out speculative arbitrage from price changes, which is usually called profit hedging.
Of course, the hedging between futures and spot is not limited to hedging, and it is also possible to hedge when the price difference between futures and spot is too large or too small. Just because this hedging transaction needs spot trading, the cost is higher than that of simply doing futures, and some conditions are needed to do spot trading, so it is generally used for hedging.
Baidu encyclopedia-hedging