In plain English that everyone can understand, it is (buying and using futures to protect spot value) and (selling and using futures to protect spot price)
Value).
Only when the risk of the enterprise is uncontrollable and cannot be solved by immediate means can hedging be carried out. One problem with hedging is hedging.
Insurance means that the spot loses money in futures, and if the spot loses money in futures, one of them will lose money, so we should accept this part of the loss and make money as a whole.
Hedging significance: 1. Protect profits. Avoid risks.
Hedging, commonly known as Qin Hai, also known as hedging transaction, refers to the fact that traders sell (or buy) futures trading contracts with the same amount as hedging in the futures exchange while buying (or selling) actual commodities. It is an act of temporarily replacing physical transactions with futures transactions in order to avoid or reduce the losses caused by unfavorable price changes.
Trading principle: the principle of opposite trading direction; The principle of similar goods; Principle of commodity equivalence; Same month or similar month principle.
In fact, hedging in the futures market is a kind of venture capital behavior aimed at avoiding the risk of spot trading, and it is an operation combined with spot trading.
The role of hedging
The key to the correctness of enterprise's production and management decision lies in whether it can correctly grasp the market supply and demand state, especially whether it can correctly grasp the next changing trend of the market. The establishment of the futures market not only enables enterprises to obtain the supply and demand information of the future market through the futures market, but also improves the scientific rationality of the enterprise's production and operation decision-making, and truly determines the production on demand. It also provides a place for enterprises to avoid market price risks through hedging, which plays an important role in improving the economic benefits of enterprises.
To sum up, the role of hedging in the production and operation of enterprises:
Determine the purchase 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.
Determine the sales price and ensure the profit of the enterprise. Production enterprises have signed contracts to purchase raw materials, sell related finished products through futures and lock in production profits.
Ensure that the enterprise budget does not exceed the standard.
Upstream enterprises of raw materials in the industry ensure production profits.
Guaranteed trade profit
Adjust inventory
A, when it is considered that the current raw material price is reasonable and it is necessary to increase the inventory, futures can be used instead of spot inventory, and the utilization rate of enterprise funds can be improved through its leverage principle to ensure the cash flow of enterprises.
B, when the price of raw materials falls, and the enterprise's inventory cannot be reduced due to production or other factors, sell it in futures to avoid the losses caused by price depreciation to the enterprise.
finance
When spot enterprises need financing, they can obtain a higher financing ratio from banks or related institutions by pledging futures warehouse receipts.
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.
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.