What should be noted in hedging gold futures?

3. März 2023

Generally, traders who participate in buying and selling gold futures contracts sell and buy back the same number of contracts as the previous contract before the contract expiration date, which is known as closing out, without the need for physical delivery of gold. The profit or loss from each transaction is equal to the difference between the buy and sell contracts in opposite directions, and this trading method is commonly known as hedging.

Gold investors will hold two losing positions in hedging. It is precisely because their positioning in hedging is somewhat misguided that they suffer heavy losses in actual trading, making people fearful of hedging transactions.

Common structural flaws in hedging transactions include: investing too many products in hedging plans, excessively using embedded leverage trading, making products too complex, insufficient research on how hedging transactions are executed in rising or falling prices, and speculating under the guise of hedging.

So what should we pay attention to?

3. März 2023

Anmerkung

Avoid contracts with poor liquidity: If one or two contracts in the arbitrage combination have poor liquidity, we need to pay attention to whether the arbitrage combination can open and close positions smoothly at the same time. If not, we should consider abandoning this arbitrage opportunity. In addition, if the combination is large enough, both contracts in the combination have certain impact costs.

3. März 2023

Anmerkung

Avoid positive arbitrage that is not influenced by short-term factors: Since arbitrage opportunities are found based on the medium and long-term price relationship, the factors that cause arbitrage opportunities are generally short-term or sudden events that cause price deviations. Therefore, one should generally not intervene in positive arbitrage opportunities that are not influenced by short-term factors.

3. März 2023

Anmerkung

Risks of forced liquidation in arbitrage: The risk is particularly evident in inter-month arbitrage. Generally, inter-month virtual arbitrage does not involve spot positions, and the risk of forced liquidation lies in the lack of spot positions for maintenance. When the market trend shows one-sided forced liquidation, the forced liquidation monthly contract will be stronger than other months, and the price difference will not return to rationality, leading to a situation of loss.