Analysis:

What is hedging?

Source: Jinbao Futures? Time: February 23, 2005 1 1: 0 1: 22? Number of visits: 2524

Overview of hedging

? Hedging refers to futures trading for the purpose of avoiding spot price risk.

Traditional hedging:

? It means that producers and operators buy or sell a certain number of spot commodities in the spot market, and at the same time sell or buy futures commodities (futures contracts) with the same variety and quantity as the spot commodities in the futures market, but in the opposite direction, so as to make up for the losses in another market with the profits of one market and avoid the risk of price fluctuation. The role of hedging

? Hedgers refer to those manufacturers, institutions and individuals who regard the futures market as a place for price risk transfer and use futures contracts as a temporary substitute for buying and selling commodities in the spot market in the future to hedge the prices of commodities they buy (or own or own in the future) to be sold or need to buy in the future. Hedging principle

? Hedging can avoid risks, because the futures market has the following basic economic principles:

? (1) The futures price trend of the same commodity is consistent with the spot price trend.

? (2) As the expiration date of futures contracts approaches, the prices of spot market and futures market tend to be consistent.

? Hedging operation principle

? (A) the principle of similar goods

? (two) the principle of the same quantity of goods.

? (3) the principle of the same or similar month

? (4) the principle of opposite transaction direction

? Application of hedging

? The risk of price fluctuation faced by production and operation enterprises can finally be divided into two types: one is worried about the future price increase of a certain commodity; The other is worrying that the price of a commodity will fall in the future. Purchase hedging

? Buying hedging means that the hedger first buys the same number of futures contracts with the same or similar delivery date in the futures market, and buys short positions and holds long positions in the futures market in advance. Applicable object and scope

? 1, in order to prevent the future purchase of raw materials, processing and manufacturing enterprises will increase their prices.

? 2. The supplier has signed a spot contract with the buyer to deliver the goods in the future, but the supplier has not purchased the goods at this time, fearing that the price will rise when purchasing the goods in the future. 3. The demander thinks that the current spot market price is very suitable, but due to the lack of funds or foreign exchange, or the goods that meet the specifications can't be found at the moment, or the warehouse is full, it can't buy the spot immediately, and it is worried about the future spot price increase. Sales hedging

? Selling hedging means that the hedger first sells commodity futures contracts with the same quantity and the same or similar delivery date in the futures market:

? 1. Manufacturers, farms and factories that directly produce physical commodity futures have not yet sold or will soon produce some harvested physical commodity futures, fearing that the price will fall when they sell them in the future; 2. Storage and transportation companies and traders have inventory on hand and have not sold it, or storage and transportation companies and traders have signed a contract to buy a commodity at a specific price in the future but have not resold it, fearing that the price will fall when they sell it in the future; 3. Processing and manufacturing enterprises are worried that the prices of raw materials in stock will fall in the future.

?

? Basis and hedging

? First, the basic concept.

? Basis is the difference between the spot price of a commodity in a specific place and the specific contract price of the same commodity. Basis = spot price-futures price.

? Basis function

? Basis is a very important concept in futures trading and an important indicator to measure the relationship between futures prices and spot prices. Basis is the basis of successful hedging. Based on the principle of "double betting, reverse operation and reciprocal opposition", hedgers operate in both the spot market and the futures market at the same time, and use the profits of one market to make up for the losses of the other market, so as to establish a "mutual offset" mechanism between the two markets, thus achieving the purpose of transferring price risks.