As a method to avoid or reduce corporate price risks, hedging has been applied by many companies in business management and has become an effective tool to ensure stable corporate operations. There are many companies that have benefited from hedging business, but there are also many companies that failed to effectively avoid risks when conducting hedging business, and even suffered losses. In hedging practice, we found that operating in accordance with commonly understood hedging requirements and strategies sometimes increases operating risks and makes it difficult to complete the set tasks. By rethinking hedging, we summarize the actual situation in the application of hedging, introduce new concepts related to hedging, strive to reveal the deep-seated problems of hedging, and analyze the intrinsic relationship between hedging operations and corporate price risks. , further understand the hedging theory, and explore corporate hedging business from more perspectives.

Most companies have a certain price risk tolerance

When companies carry out business activities, due to the impact of marketization of operations, the price systems of most companies include a certain price risk tolerance. . Assuming that there are no hedging tools such as futures, the profit level included in the company's pricing system can still accommodate the general price fluctuations of the industry. Within this price fluctuation range, the company's production and operations will not be greatly affected, and in this Within the price tolerance, there are sometimes more profits, sometimes less profits, or sometimes losses, but a relatively reasonable profit level will be reached after the profits and losses complement each other. Hedging within the price tolerance range of the enterprise is actually adding additional risk exposure outside the normal price system of the enterprise. Not only does it fail to achieve the purpose of hedging, but it also causes risks due to the risk nature of futures trading itself. , or risk inertia occurs due to hedging against spot, causing enterprises to bear greater risks. The reason for entering the market at this time is for hedging, which actually contradicts the purpose of entering the market for hedging - to reduce the company's price risk.

The significance of hedging is to avoid extreme price risks

Hedging is to avoid price risks through related futures transactions, but can hedging be used to avoid all price risks? ? As discussed above, hedging within the range of price changes that an enterprise can tolerate increases the enterprise's risks, which is contrary to the purpose of hedging to avoid price risks. The significance of hedging is to avoid that part of price risk that is beyond the company's own risk-bearing capacity. Hedging is only necessary when price changes exceed the risk tolerance of the enterprise, that is, when the price changes are so large that the enterprise cannot bear them, seriously affecting the normal operation of the enterprise, causing the enterprise to run into difficulties, or even endangering the survival of the enterprise. There is a risk starting point problem here, that is, if the risk to be avoided is less than the own risk of the hedging operation, hedging will lose its meaning. If the enterprise's price system contains a high price risk tolerance, then hedging only needs to consider how to avoid the risk of price changes that exceed the enterprise's risk tolerance.

Give an example to illustrate: when the crude oil price is US$70/barrel, for airlines, the profit level is enough to bear the cost of US$80/barrel, if the expected crude oil price does not exceed US$80 / barrel, then hedging at this time has no special significance for the airlines, because the operations of the airlines will not be significantly affected by the small increase in prices, and production and operations will still proceed normally. If the airline carries out hedging by buying at this time, or uses collar options such as buying call options and selling put options for hedging, not only will the company not be able to gain a lot of profits, but it will also create a very risky futures business. The risk of long positions will cause significant financial losses when crude oil prices fall sharply. Airlines should have naturally profited when crude oil prices fell, but unnecessary hedging caused profits to shrink. It is not worthwhile and unnecessary to use futures or options tools just to avoid the price risk of crude oil prices rising from US$70/barrel to US$80/barrel. The actual result of the operation is not long hedging but the equivalent of unilateral hedging. For long risk exposure, it is of practical significance to avoid price risks above US$80/barrel.

Correctly distinguish between reasonable inventory and speculative inventory

Based on production and operation needs, production and operation management level and normal market demand, enterprises have a reasonable inventory of raw materials, semi-finished products and finished products. Enterprises expect that the price of some or all of their inventories will rise, and hoard raw materials, semi-finished products or finished product inventories that are higher than the enterprise's reasonable needs. This higher inventory is essentially the result of enterprise price speculation. Only reasonable inventory is the quantity that should be considered for hedging. The risk avoidance of excess speculative inventory cannot be defined as hedging, but should be attributed to the treatment of speculative risks. Even if futures are used to avoid risks, it cannot be called it. for hedging.

The reason for distinguishing between hedging operations and speculative operations is that hedging and speculative operations have different requirements. The market entry standards, stop loss standards, market entry volume, and position closing standards are also different. According to the hedging operations, It is inappropriate to ask for speculative operations. The results of hedging operations are tied to the business gains and losses of the company, and have their own market entry basis that meets their own requirements. However, the nature, purpose, and risk characteristics of speculative operations are very different from hedging. The entry of speculative stocks into the market based on hedging operation requirements lacks operational rationality, which will also lead to more risks and increase unnecessary losses.

Distinguishing the reasonable part and the speculative part of the enterprise's inventory is of great significance to the enterprise's price risk identification and response. There is no need to speculate on the reasonable inventory, and there is no need to perform hedging operations on the speculative inventory. At the same time, it should also be noted that the part of the enterprise's inventory that is less than the reasonable inventory is also speculative inventory, which can be considered as a negative speculative inventory. This understanding is helpful for enterprises to correctly determine the timing and quantity of replenishment when inventory is low, and it is also beneficial to Enterprises determine the timing and quantity of using futures for virtual replenishment.

Determine the hedging duration based on operating characteristics, etc.

The time period during which an enterprise may be exposed to risks brought about by price changes is called the hedging window period. For example, the time period between a soybean import trading enterprise buying a shipment of foreign soybeans and the completion of all sales is the hedging window period, while the entire production and operation process of production and processing enterprises is in the hedging window period. During the hedging window period, the company's operating characteristics, price risk characteristics, price risk tolerance, price change trends and expected change amplitudes must be considered to determine whether hedging operations are required. It does not mean that entering the hedging window period means Carry out hedging operations unconditionally. Whether the company needs to conduct hedging continuously or at a specific time can be determined based on the company's operating characteristics and price change characteristics.

Continuous hedging means starting the operation after entering the hedging window period. Generally speaking, if a company's price risk tolerance is small, then hedging should closely follow the price.

If the enterprise's price risk tolerance is relatively large, then the key entry points for hedging can be set more loosely, and hedging operations can be temporarily not performed when price changes are favorable. Choosing to perform hedging operations when price risk is relatively high is timing hedging. When prices rise or fall beyond a certain range or cross key points, it will have a greater impact on the company's operations. At this time, hedging operations will be carried out after a comprehensive assessment based on policies, international relations, economic trends, emergencies, variety supply and demand, and substitution of related varieties.