In ** trading, hedging (hedging) and speculation are two types of trading modes with completely different motives!
Hedging and speculation, the starting point of trading is different, the trading methods used are different, and the expectation of profit is also different!
Specifically: 1. Hedging refers to: buying (selling) contracts with the same quantity as the number of commodities operating in the spot market, with similar terms, but in the opposite direction.
The purpose is to cover the risk of loss of this commodity or financial instrument due to market changes by selling (buying) the same ** contract at some time in the future.
The main purpose of this trading behavior is to lock in risk, so there is no high expectation of profit!
2. Speculation refers to the trading behavior of investors or traders, according to their own research and judgment of the market, taking advantage of the opportunities that appear in the market to buy and sell the price difference, in order to obtain higher profits.
Speculators can go long or sell short, usually unilaterally, but there are also two-sided switching operations.
Hedgers usually come from the real economy, because they are engaged in the corresponding commodity-related industries, so they are not interested in taking the risk to make a profit, but want to transfer the risk out and obtain stable industrial profits.
As a result, they will either sell contracts in the market to hedge the value of their spot positions in the cash market or sell in the future.
Hedgers need to trade accordingly according to the cycle of spot trading, so they will hold the contract for a longer time.
If there are only hedgers in the market, buyers and sellers may not be in the market at the same time and in the same volume, which will lead to a dismal market trade, high bid-ask spreads, and a significant increase in hedging costs. Therefore, the market needs the participation of speculators to provide liquidity to hedgers and reduce transaction costs.
Speculators are traders who are willing to risk their own capital in the hope of making a profit by speculating on the direction of the market. The moderate participation of speculators provides more liquidity to the market and reduces transaction costs for hedgers.
However, excessive speculation will lead to large fluctuations, which is not conducive to hedgers to better use the market to hedge the risk of spot.
In addition to hedging and speculation, there is a third type of trading behavior in the market, and that is arbitrage!
Arbitrage is a trading technique that can be used by speculators or hedgers, and arbitrage is mainly divided into intertemporal arbitrage, cross-market arbitrage, cross-variety arbitrage, etc.
Arbitrage traders believe that there is a reasonable price difference between two commodities or different contracts of the same commodity, and if they are out of the price difference range, they can buy and sell the two contracts and wait for the price difference to return to a reasonable range to make a profit.
Arbitrageurs pursue the certainty of profits, have low profit expectations for a single transaction, and are not sensitive to the direction of operation.
Above, hedging, speculation and arbitrage are the three main trading behaviors.
The futures market is risky, investors need to be cautious!
Hedging and speculation