Hedging refers to using the futures market as a place to transfer price risks, using futures contracts as a temporary substitute for buying and selling commodities in the spot market in the future, and buying them now in preparation for selling them later or Trading activities that insure the price of goods that need to be purchased in the future.

Arbitrage means that investors or borrowers simultaneously use the difference in interest rates and currency exchange rates between two places to circulate capital to earn profits. Arbitrage is divided into two types: offset arbitrage and non-offset arbitrage.

Extended information:

When conducting arbitrage trading, investors are concerned about the mutual price relationship between contracts, not the absolute price level. Investors buy contracts that they believe are undervalued by the market and sell contracts that they believe are overvalued by the market.

If the price movement direction is consistent with the original prediction; that is, the price of the purchased contract goes up and the price of the sold contract goes down, then investors can profit from the change in the relationship between the two contract prices. On the contrary, investors will suffer losses.

The prerequisite for arbitrage activities is that the arbitrage cost or the discount rate of the currency with high interest rates must be lower than the interest rate difference between the two currencies. Otherwise the transaction is unprofitable.

Baidu Encyclopedia - Hedging

Baidu Encyclopedia - Arbitrage