1. Hedging, commonly known as "Qin Hai", also known as hedging transaction, means that traders sell (or buy) the same number of futures trading contracts in the futures exchange as hedging. It is an act of temporarily replacing physical transactions with futures transactions in order to avoid or reduce the losses caused by unfavorable price changes.

2. At a certain point in time, the same commodity is bought and sold in the spot market and the futures market in the same amount but in opposite directions, that is, the same amount of futures is sold or bought in the futures market while buying or selling the real thing. After a period of time, when the price changes make the spot trading profit or loss, the losses in the futures trading can be offset or compensated. Therefore, hedging mechanisms are established between "now" and "period" and between short-term and long-term to minimize price risk.

3. Theoretical basis of hedging: the trend of spot market and futures market is similar (under normal market conditions), because these two markets are affected by the same supply and demand relationship, and their prices rise and fall together; However, due to the opposite operation and profit and loss of these two markets, the profit of futures market can make up for the loss of spot market, or the appreciation of spot market is offset by the loss of futures market.