Speculation: refers to the trading behavior of seizing the opportunity according to the judgment of the market and making use of the price difference in the market to profit from it. Speculators can "short" or "short". The purpose of speculation is straightforward-to profit from the spread.
According to the length of holding futures contracts, speculation can be divided into three categories:
The first is long-term speculators. After buying or selling a futures contract, these traders usually hold the contract for days, weeks or even months, and then hedge the contract when the price is favorable to them.
The second type is short-term traders, who generally buy and sell futures contracts on the same day or a trading festival, and do not hold positions overnight;
The third category is profit-seekers, also known as "hat snatchers". Their skill is to take advantage of small price changes to make small profits, and they can make multiple rounds of trading in one day.
Hedge (hedge):
It is to buy (sell) futures contracts with the same quantity and opposite direction as the spot market, so as to compensate the actual price risk caused by price changes in the spot market by selling (buying) futures contracts at some future time.
The most basic types of hedging can be divided into buying hedging and selling hedging. Buying hedging refers to buying futures contracts through the futures market to prevent losses caused by rising spot prices; Selling hedging refers to selling futures contracts through the futures market to prevent losses caused by falling spot prices.
Hedging is the motive force of the futures market, especially the metal futures market. It comes from the spontaneous trading behavior of buying and selling forward contracts when the spot price fluctuates greatly in the production and operation process. The trading mechanism of this forward contract has been continuously improved, such as standardizing the contract, introducing hedging mechanism and establishing margin system, thus forming modern futures trading. Enterprises purchase insurance for production and operation through the futures market, which ensures the sustainable development of production and operation activities. For example, the price of aluminum has skyrocketed. In order to prevent the profit from shrinking due to the falling aluminum price, a large aluminum factory sold aluminum contracts in different contract months in Shanghai aluminum market when the aluminum price rose to more than 1.53 million yuan/ton. Even if aluminum prices plummet in the future, profits will be locked in the futures market.
Price difference:
Buy and sell two different futures contracts at the same time. Traders buy contracts that they think are "cheap" and sell those "high-priced" contracts at the same time, benefiting from the changing relationship between the prices of the two contracts. In arbitrage, traders are concerned about the mutual price relationship between contracts, not the absolute price level.
Arbitrage can generally be divided into three categories: intertemporal arbitrage, cross-market arbitrage and cross-commodity arbitrage.
Intertemporal arbitrage is one of the most common arbitrage transactions. When the normal spread between different delivery months changes abnormally, it is profitable to hedge the same commodity, which can be divided into two forms: bull spread and bear spread. For example, the metal bull spread, the exchange buys metal contracts in the delivery month and sells metal contracts in the forward delivery month, hoping that the contract price will rise more than the forward contract price; Bear market arbitrage is the opposite, that is, selling the delivery month contract and buying the forward delivery month contract, expecting the forward contract price to fall less than the contract price.
Cross-market arbitrage is an arbitrage transaction between different exchanges. When the same futures commodity contract is traded in two or more exchanges, there is a certain price difference relationship between commodity contracts due to geographical differences between regions. For example, London Metal Exchange (LME) and Shanghai Futures Exchange (SHFE) both trade cathode copper futures, and the price difference between the two markets will exceed the normal range several times a year, which provides traders with opportunities for cross-market arbitrage. For example, when LME copper price is lower than SHFE, traders can buy LME copper contract and sell SHFE copper contract at the same time, and then hedge and close the trading contract after the price relationship between the two markets returns to normal, and vice versa. When doing cross-market arbitrage, we should pay attention to several factors that affect the spread of each market, such as freight, tariff and exchange rate.
Cross-commodity arbitrage refers to trading by using the price difference between two different but related commodities. These two commodities can replace each other or be restricted by the same supply and demand factors. The form of cross-commodity arbitrage is to buy and sell commodity futures contracts with the same delivery month but different varieties at the same time. For example, metals, agricultural products, metals and energy can all carry out arbitrage transactions. Traders continue to carry out arbitrage transactions, which will help distorted market prices return to normal levels and enhance market liquidity.