Hedging is a financial term that means that one investment deliberately reduces the risk of another investment. This is a way to reduce business risks while still making profits from investment.
General hedging is to conduct two transactions at the same time, both related to the market, in the opposite direction, with the same amount and breakeven.
Market correlation refers to the unity of market supply and demand that affects the prices of two commodities. If the relationship between supply and demand changes, it will also affect the prices of two commodities.
Moreover, the direction of price changes is generally the same, and the opposite direction means that the buying and selling directions of two transactions are opposite, so that no matter what direction the price changes, there is always a profit and a loss.
Of course, in order to protect the capital, the number of two transactions must be determined according to the range of their respective price changes, so that the number is roughly the same.
Simply put, stocks can not only be long, but also short, that is, when the stock price falls, there are also opportunities for profit.
There are two short options in the A-share market; The first is to sell by short selling, that is, when it is judged that a certain target will fall.
You can lend the stock to a securities company, choose to sell it at a high level, and then buy it back to the securities company after the stock falls. This kind of high selling and low buying has achieved the goal of short selling and profit;
But all this is based on correct judgment. If the misjudgment also faces losses, then there is a second method: hedging.
That is to say, short stock index futures, such as short several stock index futures contracts when the market is at 5000 points. If the market falls to 4000 points, shorting will get 1000 points.
The hedging of stocks is to buy stocks and sell stock index futures at the same time to achieve breakeven. When stocks go up, stocks make money.
If stocks fall, stock index futures can make money here. The so-called hedging refers to two transactions related to the market, which are in opposite directions, with the same amount and break even.
Market correlation means that only two market trends are the same. The opposite direction means that the buying and selling directions of two transactions are opposite, so that no matter which direction the price changes, there is always a profit and a loss.
The quantity of the two transactions should be determined according to the range of their respective price changes, and the quantity should be roughly the same.
Hedging trading mode
1, stock index futures hedging: participate in stock index futures and stock spot market transactions at the same time, or conduct stock index contracts with different maturities and different (but similar) categories at the same time to earn the difference.
2. Commodity futures hedging: when buying or selling a futures contract, selling or buying another related contract, and closing two contracts at the same time at a certain time.
3. Statistical hedging: buy relatively undervalued investment varieties (stocks or futures), short-sell relatively overvalued varieties, and make profits when the spread returns to equilibrium.
4. Option hedging: pricing rights and obligations separately, so that the income is unlimited and the risk loss is limited.
5. Fixed hedging: When investors participate in private placement, hedging with stock index futures is a better scheme to lock in income and reduce risks.