It means that in the futures market, investors buy commodity contracts for future delivery at a leverage ratio (usually 10%) based on bullish psychology. In order to obtain the spread income or offset the risk of future price increases.
If you buy, you sell. Contrary to buying and opening positions, you sell and close positions. Only when buying and selling positions are completed can a transaction be completed.
Buying a position is to be bullish on the future price trend of a commodity such as precious metals, and deliberately buy a futures bullish contract. The contract stipulates that investors can buy this commodity at the market price at the time of signing the contract within the agreed time limit. In fact, speculators do not need actual delivery when buying contracts, but only need to pay a certain performance bond in a certain proportion (usually 10%) and freeze the corresponding deposit in the account funds. If the goods that investors are optimistic about really expect to rise, investors can sell and close their positions, take profits and earn the difference.
For example,
Example 1: Suppose the current market price of rice is 4000 yuan/ton. According to the analysis of a speculator, due to the recent shortage of water in Thailand, the grain producing areas in China have decreased, and the price of rice will rise sharply in the future. In order to obtain the price difference, it bought and opened positions in the rice futures market. That is to say, I bought a recently bullish rice contract, with 10 tons in one hand, and 4000 yuan was deducted from my fund account as a deposit to freeze it. If the price of rice rises to 5000 yuan/ton after half a year, the position will be closed and the fund account will be thawed. After deducting the relevant handling fees, this transaction earned a price difference of nearly 10,000 yuan; On the other hand, if the rice price drops to 3,000 yuan/ton, the transaction will lose nearly 10,000 yuan.
Example 2: Suppose the current market price of stainless steel is 10000 yuan/ton ... Based on the analysis of economic prosperity and trade, a kitchen ware factory thinks that stainless steel will rise sharply in the future. In order to offset the adverse impact of future price increases on production costs, it decided to buy open stainless steel futures (10 tons). If the price of stainless steel rises to 12000 yuan /t after half a year, the factory has two choices at this time: first, after deducting transaction costs and margin interest, it can make a profit of nearly 20 thousand yuan; Second, enter the physical delivery liquidation. That is, make up the real price of 90,000 yuan, pay part of the distribution fee and interest, and buy back ten tons of stainless steel worth1.200 million yuan and put it into production. Both methods can save nearly 2000 yuan/t.
On the other hand, if the price of stainless steel falls below 10000 yuan /t half a year after the opening of the purchase, the transaction will generate losses.
The difference between Example 1 and Example 2 is that:
The first example is a typical speculative trading behavior, aiming at obtaining the price difference, and most of them do not enter the physical delivery;
The second example is a typical hedging behavior, the main purpose of which is to offset the risks brought by the price fluctuation of means of production.