Hedging refers to the trading activities in which the futures market is used as a place to transfer the price risk, and the futures contract is used as a temporary substitute for buying and selling commodities in the spot market in the future, so as to insure the prices of commodities to be bought in the future.

Arbitrage means that investors or borrowers use the difference in interest rates and currency exchange rates between the two places at the same time to make capital flows to earn profits. Arbitrage can be divided into arbitrage with and without interest.

Extended data:

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

If the price change direction is consistent with the original forecast; That is, the price of the buying contract is higher and the price of the selling contract is lower, so investors can benefit from the change of the relationship between the two contract prices. On the contrary, investors will lose money.

The precondition of arbitrage activity is that the arbitrage cost or the discount rate of high-interest currency must be lower than the interest rate difference between the two currencies. Otherwise, the transaction is unprofitable.

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