Traditional hedging 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 contracts of the same variety and quantity in the opposite direction in the futures market, so as to make up for the losses in another market with the profits in one market and avoid the risk of price fluctuation.

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.

Based on the principle of "double betting, reverse operation and reciprocal opposition", the hedger establishes a "mutual offset" mechanism between the two markets, thus achieving the purpose of transferring price risk.

Similar to commodity futures hedging, stock index futures hedging is to set a certain number of stock index future positions in the futures market, which is opposite to the spot trading direction, to offset the risks brought by the price changes of the spot stocks held now or in the future. Because generally speaking, the price of stock index futures and the spot price of stocks are affected by similar factors, and their changing directions are the same. Therefore, as long as investors establish positions in the stock index futures market that are opposite to the spot market, when the market price changes, they will inevitably make profits in one market and lose money in the other. By calculating the appropriate hedging ratio, the loss and profit can be roughly balanced, thus achieving the purpose of hedging.

In figure 1, line ① represents the market value curve of SSE 50ETF without hedging; Line 2 represents the market value curve of 50ETF after hedging with SSE 50 stock index futures. After hedging, the market value of SSE 50ETF is not only less volatile than that of unsecured portfolio, but also higher than that of unsecured portfolio. During this period, the market is in a state of great uncertainty, and hedging not only improves the stability of the market value of investors' positions, but also is significantly higher than the portfolio without hedging.

Figure 1 Comparison of the effects of a SSE 50ETF fund before and after hedging.

What are the necessary conditions and operating principles of hedging?

Not all stocks have a high correlation with the index. Investors can't hedge stock index futures to avoid stock market risks when their stocks are irrelevant or not highly correlated. For example, when investors hold a single variety of stocks instead of a combination of stocks, once a single stock and stock index appear in opposite directions, both stocks and stock index futures may suffer losses. At this time, the so-called hedging is disastrous.

For example, on May 3 1 day of a certain year, although the index closed red, there were still more than 300 stocks in the daily limit position. Assuming that these daily limit stocks or their stock portfolios are sold and hedged in the Shanghai and Shenzhen 300 stock index futures market, the losses on the hedging day will not be reduced, but will be further expanded. Because using stock index futures to hedge is the risk of the whole stock market, if the stock is greatly influenced by some self-risk factors, its price change and index price change will be very reversible, resulting in poor hedging effect, so we can consider not hedging at this time. Because the futures market trades index futures with different targets, the effect will be more obvious only if the stock index futures of constituent stocks with the same target index are hedged. If most of the stocks held by investors are non-standard stock index components, it is difficult to guarantee the hedging effect.

In addition, not all stock portfolios need to be hedged, and there are two main criteria for judging whether it is necessary to hedge stock positions:

First, the flexibility of the spot market in and out of stock positions;

The second is the extent to which stock positions are affected by non-systematic risk factors.

If a stock portfolio has a small position, a small number of constituent stocks and flexible holding time, it can operate flexibly in the stock market. At this time, we can consider not hedging and trading directly in the stock spot market according to the judgment of the market; On the contrary, if the position held is relatively large, the composition of the stock portfolio is complex and needs to be held for a long time, hedging can be considered. In addition, the extent to which the combination is affected by non-systematic factors is also one of the key points to be considered.

The general principles of stock index futures hedging operation are:

1. The principle of the same or similar varieties. This principle requires investors to choose the same or as close as possible to the spot variety to be hedged when hedging; Only in this way can the consistency of price trends between the spot market and the futures market be guaranteed to the greatest extent.

2. The principle of the same or similar month. This principle requires investors to choose the delivery month of futures contracts and the proposed trading time in the spot market as much as possible when hedging.

3. The principle of opposite direction. This principle requires investors to buy and sell in the spot market and futures market in opposite directions when implementing hedging operations. Because the price trend of the same kind (similar) goods in two markets is the same, it is bound to make a profit in one market and lose money in the other market, thus achieving the purpose of maintaining value.

4. The principle of equivalence. This principle requires that when investors hedge, the number of commodities specified in the contract of the selected futures varieties must be equivalent to the number of commodities to be hedged in the spot market; Only in this way can the profit (loss) of one market be equal to or close to the loss (profit) of another market, thus improving the hedging effect.