Lao Hongbo said that derivatives have many modes in the operation of enterprises, including five types of basis speculation, hedging, basis trade, basis service and entitlement trade. Industrial service companies need to clearly analyze various models and choose appropriate derivatives services based on the resources and capabilities of customers.

He believes that the main body of hedging is an industrial company, which needs to have spot operations. Industrial companies sometimes passively hold some positions. For the stability of the company's production and operation, they need to use derivatives to protect themselves. The characteristic of hedging is that industrial companies have continuous logistics, which requires continuous basis study to take the initiative to study variety basis and regional basis.

Lao Hongbo introduced that hedging industrial companies can be divided into four categories. One is the mines in the upper reaches of the industry. They are “headless and move very hard”. The mining cost of the mine is relatively fixed, and the price of finished products fluctuates dramatically. The second is terminal processing plants. They are “very moving heads and not moving feet”. The prices of finished products are relatively stable and the prices of raw materials fluctuate violently. Therefore, the purchase cost of raw materials needs to be managed. The third is the steel mills in the middle reaches. They "will move their heads and their feet." Both raw materials and finished materials are commodities and will "move very well." What the steel mill needs to manage is the production and processing profit, that is, the change in the price difference between raw materials and finished products. Fourth, trading companies with industrial backgrounds sometimes passively hold some inventory.

He believes that industrial companies sometimes passively hold some inventory because of the needs of production and operation. There are some demands for raw materials, sales demand for manufactured products, and demands for capacity management. They can use derivatives to protect themselves and enable production and operation. Became more stable.

Lao Hongbo said that due to the epidemic, the country ’s one-month life rhythm has stalled, but in fact the production of steel mills is relatively affected, and the downstream demand is insufficient, resulting in more than 3 to 4 weeks of finished inventory . The additional inventory will bring additional price risk pressure to steel mills and traders. They can hedge these inventories through the futures market, and sell some of the passively accumulated inventory to eliminate the uncertainty of price fluctuations.

In addition, he gave an example of the basis trade in the steel industry. If steel mills have more than 5 million tons of steel stocks this year and are worried about the downward pressure on prices, sell them in the futures market to let the futures market bear the pressure of 5 million tons of steel prices. And its downstream also has the future demand of 5 million tons of steel, worrying about the risk of rising. So the two parties agreed to use the futures price of Shanghai Futures Exchange to carry out the price.

Lao Hongbo believes that the traditional trade is to complete the transfer of logistics and price flow at the same price, which is essentially a game of each other and is opposed to each other; while the basis trade is based on a benchmark price as the axis, both supply and demand sides recognize this Price, it is agreed that in the future, it will rise or fall by a certain difference based on a certain price, so that the logistics and the price flow are separated, so that different participants in the upstream and downstream of the industrial chain can reduce the impact on different prices and different future fluctuation trends. fear.

He said that steel mills want to sell HRC at current prices, but downstream mills are bearish. By conducting post-basis trade settlement, upstream and downstream to jointly determine the market, everyone's relationship will be more harmonious, basis trade can also reduce the pressure on the market caused by large-scale hedging of large factories.