Zijin Mining is a supplier of gold mining and processing, and its main business is gold. Therefore, the gold it produces will be affected by the fluctuation of gold and silver prices in the future, which will bring the risk of profit uncertainty. Therefore, it needs to hedge the influence of the fluctuation of the gold spot market through futures contracts in the futures market, so as to avoid the fluctuation of the spot market and lock in its profits. The ideal hedging effect is that futures and spot are completely hedged, so that profits are not affected by fluctuations in the spot market. However, in practice, because the price difference between the spot market and the futures market will fluctuate, the basis risk will be encountered in the hedging process, resulting in that sometimes the losses caused by the decline of the spot market cannot be completely hedged, and sometimes there is still a certain profit after completely hedging the losses caused by the decline of the spot market. Therefore, hedging needs to constantly impact futures positions in actual operation, so that the hedging effect is as close as possible to the ideal level. View original post >>