Hedging method
1. Producer’s selling period hedging
Whether it is farmers who provide agricultural and sideline products to the market, or companies that provide copper, tin, lead, petroleum and other basic raw materials to the market, as suppliers of social commodities, in order to ensure that they have been produced and are ready to be provided to The reasonable economic profit of selling goods to the market in the future or while they are still in the production process, in order to prevent losses caused by the possible drop in prices during the official sale, can be used to reduce price risks through the selling period hedging transaction method, that is, in the futures market As a seller, an equal number of futures are sold as a means of preserving value.
2. Operators sell to preserve value
For operators, the market risks they face When the commodity price falls after it is purchased but has not yet been resold, this will reduce its operating profit or even cause a loss. In order to avoid such market risks, operators can use selling period hedging to provide price insurance.
3. Comprehensive hedging for processors
For processors, market risks come from Both buying and selling aspects. He is worried about rising raw material prices and falling finished product prices. He is even more worried about rising raw material prices and falling finished product prices. As long as the materials and processed finished products required by the processor can enter the futures market for trading, then he can use the futures market for comprehensive hedging, that is, to buy the purchased raw materials and sell the products. By maintaining the value over time, he can relieve his worries and lock in his processing profits, so that he can specialize in processing and production.
Hedging strategy
In order to better achieve the purpose of hedging, companies are conducting hedging When hedging transactions, you must pay attention to the following procedures and strategies.
(1) Adhere to the principle of "equal and relative". "Equal" means that the commodities traded in futures must be equal to the currentThe goods to be traded in the goods market are of the same type or consistent in relevant quantities. "Relative" means taking opposite buying and selling behaviors in the two markets, such as buying in the spot market and selling in the futures market, or vice versa.
(2) Spot transactions with certain risks should be selected for hedging. If the market price is relatively stable, there is no need for hedging, and a certain fee will be required for hedging transactions.
(3) Compare the net risk amount and the hedging fee, and finally determine whether to perform hedging.
(4) Based on the short-term price trend forecast, calculate the expected change in basis (that is, the difference between the spot price and the futures price), and make entry decisions based on this and timing of exiting the futures market and executing it.
The application of basis in hedging
The basis is a certain The difference between the spot price of a commodity and the price of a specific futures contract for the same commodity. Basis = spot price - futures price. If no explanation is given, the futures price should be the price of the futures contract closest to the spot month. The basis is not exactly the same as the holding fee, but changes in the basis are subject to the holding fee. In the final analysis, holding costs reflect the essential characteristics of the basic relationship between futures prices and spot prices, and basis is a dynamic indicator of the actual operating changes between futures prices and spot prices. Although futures prices and spot prices generally move in the same direction, the magnitude of the changes is often different. Therefore, the basis is not static. As spot prices and futures prices continue to change, the basis sometimes expands and sometimes shrinks. Ultimately, due to the convergence of spot prices and futures prices, the basis tends to zero in the delivery month of the futures contract.
Changes in the basis are crucial to hedgers, because the basis is caused by the inconsistent range and direction of changes in spot prices and futures prices. , so as long as the hedger observes changes in the basis at any time and chooses a favorable time to complete the transaction, he will achieve better hedging effects and even obtain additional income. At the same time, since the changes in the basis are relatively more stable than futures prices and spot prices, this creates very favorable conditions for hedging transactions. Moreover, changes in basis are mainly subject to holding costs, which is generally much more convenient than observing changes in spot prices or futures prices. Therefore, it is of great benefit to the hedger to be familiar with changes in the basis.
The effect of hedging is mainly determined by changes in basis. Theoretically, if a trader starts and ends the hedgingWhen hedging, the basis does not change, and the result must be that traders' profits and losses in these two markets are opposite and equal in quantity, thus achieving the purpose of avoiding price risk. However, in actual trading activities, the basis cannot remain unchanged, which will have different impacts on hedging transactions.
