Hedging is a financial means used to prevent risks, through the use of the market trading mechanism, lock in a certain point in the future, in order to protect investors from losses caused by fluctuations.
The basic steps for hedging are as follows:
1.Risk identification: Investors first need to identify the ** risk they face, that is, there is a ** volatility that may lead to losses.
2.Choose the appropriate ** contract: According to the type of underlying asset held by the investor, select the corresponding ** contract for hedging. The contract should be correlated to the underlying asset, e.g., an agricultural product contract is correlated to an agricultural product.
3.Money management: Investors need to determine the size of the hedging capital to ensure that they can bear the margin requirements and transaction costs of the ** contract.
4.Opening operations: Investors choose to open a position or sell a contract at a timely time according to their own views to establish a hedging position.
5.Monitor market conditions: Investors need to continuously monitor the trend of the underlying asset** and **contract**, and adjust the hedging in a timely manner.
6.Liquidation operation: At a predetermined point in time or ** point, investors can close their positions by conducting opposite trading operations to achieve the purpose of hedging.
It should be noted that hedging does not completely eliminate the risk, but it can reduce the loss caused by volatility. At the same time, investors should also understand the relevant laws, regulations and market rules when conducting hedging operations to ensure compliance operations.
How it works, examples:An apple dealer wants to buy 100 tons of apples after half a year, [future long, current short] the current negotiation of apples is 6000 yuan per ton, the business owner is satisfied, but worried about the future ** changes will lead to future acquisition cost changes, so in the ** market to do a half a year after the apple contract long single, half a year later, spot apples *** to 6200 yuan, **apple contract *** to 6210 yuan, the business owner to buy spot apples, and close the **apple long order, so:Spot market cost: 6200 * 100 = 620000, ideal cost: 6000 * 100 = 600000, 600000-620000 = -20000,Spot apples lost 20,000
* Market: 6000 yuan to open 10 lots (10 tons per lot of apples, 10 lots for 100 tons), close the position is 6210 yuan, a total profit (6210-6000) * 100 = 21000 yuan.
**Apple made a profit of $21,000
