The basic types of hedging can be divided into three types: simple buy or sell hedging, selective hedging, and cross variety combination hedging. By comparing and analyzing these three hedging methods, we can gain a deep understanding of relevant knowledge.
The development trend of hedging methods can be divided into simple buy or sell hedging method, selective hedging method, and cross variety combination hedging method. Evaluate these three types of models based on methodological assumptions, statistical models, deficiencies, and hedging results. Based on the comparative analysis of the three hedging methods mentioned above, the cross variety combination hedging method is more effective and effective.
Basic types of hedging:
(1) Manufacturers' sales hedgingFarmers provide agricultural and sideline products to the market, while enterprises provide basic raw materials such as copper, iron ore, coking coal, and coke to the market. The economic profits obtained by the suppliers of various commodities through the production of goods that are about to be supplied to the market or are still in production and will be sold to the market should be protected to avoid losses caused by the price reduction when they are officially sold. At this time, the suppliers can lock in profits in advance by selling hedging, Reducing the risk of imminent price reductions, that is, short selling in the futures market and selling an equal number of futures as a hedging measure.
(2) Traders selling hedgingCompared to traders, the market risk faced by enterprises is that the goods are not resold after acquisition, and at this time, the price of the goods drops, which can lead to a decrease in operating profits and even losses. To avoid such market risks, traders can adopt the method of selling hedging for price insurance.
(3) Comprehensive hedging of processing enterprisesCompared to processing enterprises, market risk comes from two aspects: buying and selling. Enterprises are concerned about both rising raw material prices and falling finished product prices, as is the case with steel companies. As long as the raw materials and finished products of the processing enterprise enter the exchange for futures trading, then the processing enterprise can use futures trading to implement republic hedging, buy period hedging for the purchased raw materials, and sell period hedging for the products, which can relieve the enterprise's worries, lock in processing profits, and then specialize in processing and production.
By using futures tools to hedge various price exposure risks encountered in the business process, such as settling bulk raw materials through a basis trade model; Reduce delivery costs and improve fund utilization through futures to cash conversion transactions; Through cross variety hedging, virtual steel mills are established on the futures market, leveraging the leverage of the futures market to expand the business scale of enterprises, and continuously searching for effective trading methods and rules during the trading process, ultimately forming a mature and solidified trading system and model. Modeling futures hedging strategies and establishing a steel price cycle futures operation strategy model, providing a scientific and reliable basis for trading decisions, no longer subject to extreme personal subjective judgments; At the same time, facing the requirements of environmental protection and production restrictions, we will increase the research and application of cross variety arbitrage strategies, and maintain and expand the original production scale of the enterprise in the futures market.
The basic characteristics of hedging:
At a certain point in time, buying and selling the same type of commodity in both the spot and futures markets in equal quantities but in opposite directions, that is, selling or buying the same quantity of futures in the futures market while buying or selling physical goods. After a period of time, when price changes cause a profit or loss in spot buying and selling, the profit or loss in futures trading can be offset or compensated by the profit or loss in futures trading. Thus, a hedging mechanism is established between the "present" and "future", as well as between the near and long term, to minimize price risk.
Enterprises using the futures market for hedging transactions is actually a risk investment behavior aimed at avoiding spot trading risks, which is a combination of spot trading operations.
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