Cross-hedging Cross-hedging means that if there is no commodity in the futures market that is the same as the spot commodity, the commodity that is most closely related to the spot commodity will be used for hedging. That is, when a spot commodity is hedged, but there is no futures contract for the same commodity, another commodity futures contract with the same price development trend can be used to hedge the spot commodity.

Cross-hedging risk

For ordinary hedgers, the assets to be hedged will not be exactly the same as the index stocks and quantities, so there is a risk of cross-hedging. The so-called cross-hedging risk means that the assets that investors want to hedge are not the underlying assets of stock index futures. In the actual operation process, the price trends of the two types of assets are not exactly the same, which will lead to risks. Cross-hedging needs to adjust the required futures scale through the so-called hedging ratio. The investment portfolio constructed by cross-hedging exchange is not risk-free, and its risks include the above-mentioned basis risk and other risks mainly related to the non-systematic risk of spot stock portfolio.