Hedging, in popular terms, is to buy and sell the same commodity in the spot market and futures market at the same time, with the same quantity but in the opposite direction. That is to say, when traders buy (or sell) the actual commodities, they sell (or buy) the futures trading contracts with the same amount as the hedging in the futures exchange.

Hedging in the futures market is actually a kind of venture capital behavior aimed at avoiding the risk of spot trading, and it is also an operation combined with spot trading. Establish hedging mechanisms between "now" and "period" and between short-term and long-term to minimize price risks.

Extended data:

The role of hedging in the production and operation of enterprises;

1, determine the procurement cost and ensure the profit of the enterprise. The supplier has signed a spot supply contract with the buyer for future delivery, but at this time, the supplier does not need to buy the materials required by the contract. In order to avoid the price increase when purchasing raw materials in the future, we can lock in profits by buying related raw materials in futures.

2, determine the sales price, to ensure corporate profits. Production enterprises have signed contracts to purchase raw materials, sell related finished products through futures and lock in production profits.

3. Adjust the inventory. When it is considered that the current price of raw materials is reasonable and it is necessary to increase the inventory, futures can be used instead of spot to enter the inventory, and the utilization rate of enterprise funds can be improved through its leverage principle to ensure the cash flow of enterprises.

4. financing. When spot enterprises need financing, they can obtain a higher financing ratio from banks or related institutions by pledging futures warehouse receipts.

5. Avoid exchange rate losses of foreign trade enterprises. When foreign trade enterprises settle accounts in foreign currency, they can lock in the exchange rate through futures to avoid the losses caused by exchange rate fluctuations and lock in the order profits.

6. Purchase or sales channels of enterprises. In some specific cases, the futures market can become another channel for enterprises to buy or sell. When the goods enter the delivery link, the real transfer of commodity property rights is realized, which is an appropriate supplement to spot purchase or sales.

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