Hedging, also known as hedging transaction, refers to the fact that traders sell (or buy) the same number of futures trading contracts as hedging in the futures exchange while buying (or selling) the actual goods. 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.

In the spot market and futures market, the same commodity is bought and sold at the same time in the same amount but in the opposite direction, that is, the same amount of futures is sold or bought at the same time in the futures market. 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.

Extended data:

1, theoretical basis of hedging

The trend of spot market and futures market is similar, because these two markets are affected by the same supply and demand relationship, so 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.

2, the role of hedging

The key to the correctness of enterprise's production and management decision lies in whether it can correctly grasp the market supply and demand state, especially whether it can correctly grasp the next changing trend of the market. The establishment of the futures market not only enables enterprises to obtain the supply and demand information of the future market through the futures market, but also improves the scientific rationality of the enterprise's production and operation decision, and truly achieves the demand-based production.

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