The study of hedging effect in the steel futures

Hedgers can buy or sell according to the changes in the basis of steel prices to lock cost, stabilize profits and even earn profit. However, in practice, hedgers must also consider the transportation, hoisting and other costs and the price premium in different market conditions to determine a reasonable basis. Meanwhile, this paper argues that if the hedgers who choose futures contracts which equal or close to the spot of the time, then the only factor that affect the effect in hedging is the change of the basis in the beginning and the ending. Choosing the best conditions of basis to hedge, will achieve the expected effect in hedging.