The basic characteristics of hedging: buying and selling the same commodity in the spot market and the futures market at the same time, that is, selling or buying the same amount of futures in the futures market while buying or selling the real thing. After a period of time, when the price changes make the profit and loss in spot trading even, the losses in futures trading can be offset or compensated. Therefore, hedging mechanisms are established between "now" and "period" and between short-term and long-term to minimize price risk.
Theoretical basis of hedging: the trend of spot and futures markets is similar (under normal market conditions), because these two markets are affected by the same supply and demand relationship, and their prices rise and fall together; However, due to the opposite operation of these two markets, the profit and loss are also opposite, and the profit of the futures market can make up for the loss of the spot market. The trading principles of hedging are as follows: