The function of avoiding risks in the futures market is accomplished through hedging. That is, buying and selling in futures and spot markets, establishing a profit and loss offset mechanism, and achieving the purpose of locking in costs and fixed income.

The principle of hedging and avoiding risks in futures market

(1) When the spot market and the futures market exist at the same time and are influenced and restricted by the same economic factors, the price changes of the two markets tend to be consistent. As the futures contract approaches delivery, the spot price and futures price tend to be consistent.

(2) Hedging refers to buying and selling in the futures market and the spot market in the opposite direction (for example, buying in the futures market, selling in the spot market, or vice versa), and establishing a mechanism to offset each other in the two markets. No matter how the price changes, you can get a profit in one market and a profit in another market.