Futures hedging
1. Basic principles of hedging
1. The concept of hedging:
Hedging refers to using the futures market as a place to transfer price risks and using futures contracts as a way to transfer price risks in the future. A temporary substitute for buying and selling goods in the spot market. It is a trading activity that involves buying goods now in preparation for selling them later or insuring the price of goods that need to be purchased in the future.
2. Basic characteristics of hedging:
The basic method of hedging is to conduct equal amounts but opposite directions of the same type of commodities in the spot market and futures market at the same time.
Buying and selling activities, that is, while buying or selling physical goods, selling or buying the same amount of futures in the futures market. After a period of time, when
the price changes Profit and loss in spot trading can be offset or compensated by the loss in futures trading. Thus, a hedging mechanism is established between "current" and "period"
, between near-term and forward-term, so as to reduce price risk to a minimum.
3. The logical principle of hedging:
The reason why hedging can preserve value is that the main difference between futures and spot for the same specific commodity is that the delivery date is different. , and
their prices are affected and restricted by the same economic factors and non-economic factors, and the requirement that physical delivery must be carried out when futures contracts expire
makes The spot price and the futures price also have convergence, that is, when the futures contract is approaching the expiration date, the difference between the two prices is close to zero
Otherwise, there will be arbitrage opportunities. Therefore, before the expiration date, , futures and spot prices are highly correlated. In two related markets, reverse operations will inevitably have the effect of offsetting each other.
2. Methods of hedging
1. Producers’ selling period hedging:
Whether it is farmers who provide agricultural and sideline products to the market, or they provide copper, tin, lead, oil, etc. to the market Enterprises with basic raw materials, as suppliers of
social commodities, are reasonable in order to ensure that they have already been produced and are ready to be provided to the market or are still in the production process and will be sold to the market in the future
In order to prevent losses caused by possible price drops during the formal sale, the selling period hedging transaction method can be used to reduce price risk
That is, selling an equal quantity as a seller in the futures market futures as a means of hedging value.
2. The operator sells to preserve value:
For the operator, the market risk he faces is that the price of the commodity falls before it is resold after the acquisition, which will It will reduce his operating profits or even cause losses. In order to avoid such market risks, operators can use selling period hedging to provide price insurance.
3. Comprehensive hedging for processors:
For processors, market risks come from both buying and selling aspects. He is worried about rising raw material prices and falling finished product prices. He is even more worried about rising raw material prices and falling finished product prices. As long as the materials and processed finished products required by the processor can enter the futures market for trading, then he can use the futures market for comprehensive hedging, that is, to buy the purchased raw materials. Preserving the value of its
products during the sale period can relieve him of his worries and lock in his processing profits, so that he can specialize in processing and production.
3. The role of hedging
Enterprises are the cells of the social economy. Enterprises use the resources they own or control to produce and operate, how much and how to produce and operate
Operations are not only directly related to It is not only related to the production and economic benefits of the enterprise itself, but also to the rational allocation of social resources and the improvement of social and economic benefits
. The key to whether an enterprise's production and operation decisions are correct or not lies in whether it can correctly grasp the market supply and demand status, especially whether it can correctly grasp the next change trend of the market.
The establishment of the futures market not only enables enterprises to obtain supply and demand information in the future market through the futures market, improves the scientific rationality of the enterprise's production and operation decisions, and truly determines production based on demand, but also provides enterprises with opportunities through arbitrage. Hedging provides a place to avoid market price risks and plays an important role in improving the economic benefits of enterprises.
Four. Hedging strategy
In order to better achieve the purpose of hedging, enterprises must pay attention to the following procedures and strategies when conducting hedging transactions.
(1) Adhere to the principle of "equal relativity". "Equality" means that the commodities traded in futures must be the same in type or consistent in relevant quantity as the commodities to be traded in the spot market. "Relative" means taking opposite buying and selling behaviors in the two markets, such as buying in the spot market and selling in the futures market, or vice versa;
(2) Spot transactions with certain risks should be chosen for hedging.
If the market price is relatively stable, then there is no need to conduct hedging
A certain fee will be required for hedging transactions;
(3) Compare the net risk amount and the hedging fee, and finally determine Whether to carry out hedging;
(4) Based on the short-term price trend forecast, calculate the expected change in basis (that is, the difference between the spot price and the futures price), and calculate the amount based on
< p>This is to make a timing plan for entering and leaving the futures market and implement it.5. Examples of hedging
1. Buying hedging: (also known as long hedging) is to purchase futures in the futures market and use long positions in the futures market to ensure cash flow
Short positions in the commodity market to avoid the risk of rising prices.
Example: In March, the oil factory planned to purchase 100 tons of soybeans two months later. The spot price at that time was 2,200 yuan per ton, and the futures price in May was 0.23 yuan per ton
Ten thousand yuan. The factory was worried about rising prices, so it bought 100 tons of soybean futures. By May, the spot price had indeed risen to 2,400 yuan per ton, while the futures price was 2,500 yuan per ton. The factory then bought spot goods and made a loss of 2,000 yuan per ton; at the same time, it sold futures and made a profit of 0.02 million yuan per ton.
The profits and losses of the two markets offset each other, effectively locking in costs.
2. Selling hedging: (also called short hedging) is selling futures in the futures market and using short positions in the futures market to guarantee the spot market.
Long positions to avoid the risk of falling prices.
Example: In May, the supply and marketing company signed a contract with the rubber tire factory to sell 100 tons of natural rubber in August. The price was calculated based on the market price. The price for the August period was 12,500 per ton.
Yuan. The supply and marketing company was worried about falling prices, so it sold 100 tons of natural rubber futures. In August, the spot price dropped to
11,000 yuan per ton. The company sold spot goods and made a loss of 1,000 yuan per ton; it also bought 100 tons of futures at a price of 11,500 yuan per ton, making a profit of 1,000 yuan per ton.
The profits and losses of the two markets balance out, effectively preventing the risk of natural rubber prices falling.