(Production enterprises) will hedge if they are worried that the price of their products will fall, because the higher the price of the goods they want to sell, the greater the profit, so they will short in the futures market. When the spot price falls, the futures price will definitely fall, so that the position in the futures market will generate profits, which will just offset the price drop in the spot market, thus locking in the sales profit of products and realizing hedging.
Enterprises (demand-oriented enterprises) need to purchase a kind of goods, and the lower the purchase price, the greater the help they get. In this way, in order to prevent the price of the purchased goods from rising, they will hedge and buy commodity contracts in the futures market. When the price rises, future positions will generate profits, thus avoiding the price rise in the spot market and realizing hedging!
All the above operations require that the spot tonnage is the same as the futures tonnage to achieve complete hedging, and the mismatch of positions can only achieve partial hedging.
Hedging needs to pay attention to controlling position risk and ensuring sufficient capital flow.
Futures hedging is a high-end business model, and it is necessary to set up a special team to be responsible for risk control and asset management. All the world's top 500 manufacturers are involved in hedging business, and hedging cannot be easily completed by a few people. Futures companies can only play the role of mentoring, and the key is to rely on their own market analysis and their own cost accounting capabilities.