When to use short hedging?
1 Investors hold a large number of commodities or assets and are prepared to hold them for a long time. Now it is estimated that the goods or assets they hold will go down in price in the future. However, due to the excessive quantity, there is a risk that the price will be depressed and the freight will be high.
Investors who hold a large number of commodities or assets are unwilling to lose their shareholder rights or status even if they are bearish on the market outlook.
3 sell put options. Because some investors sold put options to earn royalties because they were bullish in the option market before, but now it is estimated that the option price will fall. Once the option falls, the counterparty of the investor chooses to exercise, and the investor needs to exercise and faces losses.
Investment banks and securities underwriters can choose relevant futures contracts for short hedging when the market as a whole is not optimistic in the future.
What is short hedging?
Short hedging is because investors are worried that the price of the target commodity or asset may fall in the future, so as to sell the contract with the commodity or asset as the subject matter in the futures market to transfer the risk brought by the price drop. Investors will first establish short positions in the futures market, and then close the contract at the end of hedging.