A simple example is that, in order to prevent the loss of profits caused by the falling prices of agricultural products in the future, agricultural growers sold the corresponding number and types of agricultural futures contracts in the futures market several months ago.
So as to lock in profits at the current price. When the delivery date comes, growers only need to deliver the same amount of agricultural products, even if the prices of agricultural products fall,
You can still get the corresponding amount of funds at the original agreed price, and you only need to pay a small amount of hedging fees.
According to the different directions of participating in futures trading, stock index futures hedging transactions can be divided into two categories: buying hedging and selling hedging.
1, buy hedge
Hedging of stock index futures refers to a trading method in which investors buy the corresponding stock index futures contracts for hedging because they are worried about the rising price of the target index or stock portfolio, that is, first establish long trading positions (positions) in the futures market, and then hedge at the end of hedging, so it is also called "long hedging". The purpose of buying hedging is to lock in the buying price of the target index fund or stock portfolio and avoid the risk of price increase. Investors mainly buy hedging in the following situations:
1) investors expect to get a lot of money in the future and prepare to invest in the stock market. However, after research, the stock market will gradually rise before the funds are in place. If you wait until the funds are in place to open the position, it will inevitably increase the cost of opening the position. At this point, the stock index futures contracts that can be bought can hedge the risk of rising stock prices. Due to the leverage mechanism of stock index futures trading, the amount of funds needed to buy stock index futures contracts is small.
2) Institutional investors have a large amount of funds and plan to buy a batch of stocks at the current price. Due to the large amount of stock purchases, the completion of opening positions in a short time will inevitably push up the stock price and increase the cost of opening positions; If you open positions in batches, you are worried about rising prices. At this time, buying stock index futures contracts is the solution to the problem. The specific operation method is to buy a corresponding number of stock index futures contracts first, then buy stocks step by step, and at the same time sell and close these corresponding stock index futures contracts step by step.
3) In the stock market where traders are allowed to make short selling by short selling, because short selling has a definite return time, short sellers must buy back all the short-selling stocks before the scheduled date and return them to borrowers at a certain fee. When short sellers short stocks, if the price rises contrary to expectations, investors have to buy back stocks at higher prices. At this time, buying the corresponding stock index futures contract can play a role in hedging risks.
4) Investors selling call options of stock options or stock index options will face huge losses once the price rises. At this point, investors can hedge their risks to some extent by purchasing the corresponding stock index futures contracts.
2. Sales hedging
Selling hedging of stock index futures refers to a way for investors to sell the corresponding stock index futures contracts for fear of falling target index or stock portfolio price, that is, selling the stock index futures contracts in the futures market first, and then buying and closing positions after falling, so it is also called "short hedging". The purpose of selling hedging is to lock the selling price of the target index or stock portfolio and avoid the risk of price decline. Investors generally sell hedging under the following circumstances:
1) large institutional investors hold a large number of stocks and are prepared to hold them for a long time, but they are bearish on the market. At this time, if you choose to sell in the stock market, because of the large quantity, it will cause great pressure on the stock price and lead to higher shipping costs, and at the same time bear the corresponding transaction costs. At this point, the best choice is to sell the corresponding stock index futures contract to hedge the risk of price decline in the short term.
2) Strategic investors who hold a large number of stocks are unwilling to lose their major shareholder status because they are bearish on the market outlook. At this time, these stock holders can also hedge the risk of falling prices by selling the corresponding stock index futures contracts.
3) Investment banks and stock underwriters sometimes need to use selling hedging strategy. For investment banks and underwriters, whether the underwritten stocks can be sold at the expected price is closely related to the overall situation of the stock market. If the overall situation of the stock market is not optimistic in the future, we can sell the corresponding stock index futures contracts to avoid the losses caused by the stock price decline.
4) Investors who sell stock options or stock index options put options will face great loss risk once the stock price falls. At this time, we can hedge the risk to some extent by selling the corresponding stock index futures contracts.