Depending on possible aims there these types of hedging:
1. Classic;
2. Arbitrage;
3. Selective;
4. Anticipatory.
The classic (clean) hedging is implemented only to insure the price risks. In this case futures market operations’ dates and quantities are equal to the one on the over-the-counter.
Arbitrage hedging is implemented mainly to finance the costs of goods storage. It is based on income acquisition during the favorable change in price ratio of the real product and exchange quotation. With the normal market this type of hedging covers the required costs. This type of operation is practiced by trading firms.
The selective hedging assumes that the futures market deal won’t be implemented at the same time as the deal on the over-the-counter market; the quantities are not the same too. This type of hedging is implemented with the aim of gaining income from operations (normally the hedge “destroys” it).
The anticipatory hedging is implemented in case of purchase or selling of the futures contract until the deal with the real product is made. The last 2 types of hedging are widely used by all kinds of firms. Large companies also use multiplied selective hedging that is implemented multiple times during 1 industrial cycle on one consignment depending on the prices fluctuations risks increase or decrease.
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