What is hedging? How to use hedging to trade?

In the financial field, hedging means that one investment is used to reduce or avoid the risk of another investment. Hedging is a strategy aimed at minimizing the risk of unexpected investment, and at the same time, it can also gain income from investment behavior. Usually, the hedger can buy investments that he thinks are lower than the reasonable price, such as securities or bonds, and then combine them to sell related or similar securities or bonds. In this way, the hedger does not have to pay attention to the fluctuation of the whole market, but only to the performance of the undervalued investment. Holbrooke

Working, a pioneer of hedging theory, called this strategy fundamental speculation, that is, the difference between the theoretical value and the actual value of hedging.

Business practices are risky. Some are congenital, such as oil price fluctuations in oil fields or refining companies. Some are unexpected, and it is inevitable not to hedge. If someone is a shopkeeper, he can handle competitive, low-quality or unpopular goods, but he can't avoid the fire in the warehouse. He can buy fire insurance to avoid danger. Not all hedges are financial products. For example, if a producer exports his products to another country, he can sell the currency of that country to the required currency, so that even if the currency of that country depreciates in the future, the producer can avoid losses. Banks and other financial institutions also use hedging to control the mismatch between assets and liabilities, such as due checks and payables, fixed-rate loans and short-term (irregular) deposits.