What is hedging?

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Hedging the use of one instrument for reducing the risk associated with adverse influence of market factors on the price of another, associated with the first instrument or on cash flows generated by it.

Why is Forex interesting trading companies?
Companies engaged in foreign trade operations (exporters and importers), all over the world are the active participants of the international currency market Forex. Exporters have a constant interest to sell foreign currency, while importers to buy it.
currency rates on the international Forex market is constantly changing. In the result, the real value of buying or selling goods over the currency may change significantly, and the contract which seemed to be profitable may result in a loss. Of course, the opposite situation is possible, when the change in the exchange rate brings a profit, but the task of the trading company is not to obtain profit from currency exchange rate changes. For a trading company is the ability to plan the real cost of buying or selling goods.
At large firms engaged in import-export operations, there are analytical departments, which are engaged in forecasting exchange rates. But the prediction does not completely eliminate uncertainty, so the company are widely used in its operations hedging of currency risks.

What is hedging and what does it do?
Cash as well as future incomes and expenses in foreign currencies are subject to currency risk. Usually accounting of the company is carried out in one currency (for example, in US dollars), therefore, as a result of the revaluation of foreign currencies there may be profits or losses due to the rate fluctuations of these currencies.
Hedging the currency risk is a protection from adverse currency movements, which is to fix the current value of these funds through the conclusion of transactions on the Forex market. Hedging leads to the fact that for the company disappears rate risk, which gives a possibility to plan activities and see the financial result, which is not distorted by the exchange rate fluctuations, allows to set prices for products, calculate profit, salaries etc.
Transactions in the Forex market are carried out on the principle of margin trading. This type of trade has a number of features that have made him very popular.

" a Small starting capital allows to conduct transactions on the amounts frequently (in tens and hundreds times its excess. This excess is called the lever (Leverage).
" Trade is carried out without real delivery of money, which reduces overhead and allows to open the position as the purchase and sale of foreign currency (including those different from the Deposit currency).

Hedging the currency risk with the help of deals without actual movement of funds (using leverage) gives additional opportunities:
- allows you to not distract from company's turnover significant funds;
- allows you to sell the currency, which will be obtained in the future.

there are two main types of hedging buyer hedging and seller hedging. Buyer hedging is used to reduce risks connected with possible growth of prices of goods. Seller hedging is used in the opposite situation - to limit the risk connected with a possible decrease in prices of goods.

the General principle of hedging in the foreign trade operations is opening a position on the trading account in the direction of future operations for the funds conversion. Importer needs to buy foreign currency, that is why he opens a predetermined position foreign currency purchase on the trading account, and at the moment of real currency purchase in his Bank, he closes this position. The exporter needs to sell the foreign currency, that is why he opens a predetermined position by currency selling on the trading account, and at the moment of real currency sales in closes this position.
What you need to start hedging?

in order to benefit from hedge accounting, it is necessary to open a trading account in the company, providing services for trading at Forex market.
Usually, clients are offered margin trading in the Forex market without real delivery of purchased and sold currencies.

a Definition and examples.
As the hedged asset may be a commodity or a financial asset available or planned to be purchased or produced. Hedging instruments are selected so that adverse changes in the price of the hedged asset or the related cash flows were offset in respective parameters of the hedge asset.
Here are some examples:

1. Manufacturer of gasoline buys oil and plans to sell gasoline from it after 3 months. However, he feared that during this time the oil prices (and together with them, and the price of gasoline) will decrease, that will lead to deficiencies them a profit and possible losses. To reduce the risk, he enters into a forward contract for the delivery of gasoline with terms of 3 months.

2. In the previous example, the manufacturer of gasoline insured themselves from lower oil prices, however, lost the opportunity to get more profit from their possible improvement. Instead of selling a forward contract he could buy an option type put on the futures contract on gasoline within 3 months (or a little more). Option of this type gives its holder the right to sell a commodity at a predetermined price or to withdraw from a bargain. Having spent some money today, producer of petrol fixed minimum price of delivery, while retaining the possibility to sell the gasoline price if the market situation will turn out for him favorably.

3. European company is planning to take over the 6 month dollar credit in the Bank for a period of 3 months at the rate of LIBOR+3%. To reduce the risk of increasing cost of servicing with the rise of interest rates, she sells a CME futures on three-month евродолларовый Deposit with terms of 6 months (futures price, in this case, is defined as 100% Deposit interest rate, therefore, with the increase of interest rates is profitable short position on the futures market, i.e., sales).

4. The investor in the United States includes a conservative part of its portfolio of 30-year US Treasury bonds with fixed coupon income. In order to protect the real income on the bonds from the effects of inflation, it includes a portfolio of bonds with a fixed interest coupon and the nominal value, indexed on inflation (consumer price index CPI-U).

5. Japanese firm delivers the goods in the U.S. and receives payment in dollars, which are then converted into yen. To hedge the exposure to the growth rate of the yen and the dollar, firm buys futures JPY/USD).

6. 25% of local taxes, Texas state comes from oil producing and refining companies. When dropping world prices for oil tax revenues are declining. In order to stabilize future cash flows, the state has developed a program to hedge future sales price of oil (this is a real example).

As seen from the above examples, hedging can be applied to reduce the risk of losses connected with changes of prices for goods and other market factors (exchange rates, interest rates). In the future, however, the focus will be exactly hedging of commodity positions. Sources of price risk. Before answering the key question of "hedge or not to hedge, the company should evaluate the extent of its exposure to price risk. This exposure occurs if the following conditions:
1. The prices of raw materials (services) or to the output products are not permanent.
2. The company cannot, at its own discretion to set the prices of raw materials (services).
3. The company cannot freely set prices for the output, while maintaining the volume of sales (in volume terms).

Now let us consider the main sources of risk associated with possible changes in prices:
1. Unrealized stocks of finished products.
2. Непроизведенная products or future harvest.
3. Prisoners forward contracts.

Basic hedging instruments.
Before talking about specific tools, it should be noted that when we use the term "hedging", we mean, first of all, the purpose of the transaction, and not the means employed. The same tools are used and hedger and a speculator; the only difference is their appointment. Hedger makes a deal to reduce the risk connected with a possible price movement; speculator knowingly assumes this risk, relying on a favorable outcome.

depending on The form of organization of trading, hedging instruments can be divided into on-exchange and OTC.
OTC hedging instruments is primarily forward contracts and commodity swaps. Transactions of these types are concluded directly between the parties or through a dealer (for example, a dealer in swaps).

the Exchange hedging instruments is commodity futures and options on them. Trading in these instruments is made in specialized trading sites (stock exchanges); the essential point is the fact that one of the parties in each transaction of purchase is the Clearing house of the exchange, guarantees the fulfilment of both seller and buyer of his obligations. The main requirement to exchange commodities is the possibility of their standardization. To стандартизируемым goods belong, first of all, oil and oil products, gas, non-ferrous and precious metals, and food products (grain, meat, sugar, cocoa etc).
Now, briefly list the main advantages and disadvantages of on-exchange and OTC instruments for hedging of: OTC-tools:

the benefits of
- to the maximum extent take into account the client's specific requirements on the type of goods, lot size, and conditions of delivery

Disadvantages
- low liquidity of the cancellation of the previously concluded transaction involves, as a rule, with considerable material costs
- relatively high overhead costs
- significant restrictions on the minimum size of the party
- it is difficult to find a counterparty;
- in case of the conclusion of direct transactions between a seller and a buyer there is a risk of non-compliance by parties.

Exchange instruments:
the benefits of
- high liquidity of the market (a position can be opened and liquidated at any time)
- high reliability - the counterparty to each transaction, the clearing house of the exchange
- relatively low overhead transaction costs
- availability of telecommunications trade on the majority of exchanges can be conducted from anywhere in the world

Disadvantages
- very strict limits on the type of goods, lot sizes, conditions and terms of delivery

the Futures price.
the Use of forward exchange of instruments for hedging of transactions with the real goods based on the fact that the futures price of the product and its price on the spot market changed significantly in parallel. If it were not so, there would be a possibility of arbitrage between the cash and futures markets.

for Example, if the futures price is significantly higher than the price of the spot, one possibility is the following:
1. Take the credit
2. Buy a batch of goods on the spot market
3. Sell a futures contract on the futures market
4. On the closure of the fixed-term contract deliver real goods
5. Repay the loan.

Thus, the difference between the futures price and the price of spot reflects factors such as the cost of capital (i.e., the current level of interest rates and the cost of storage of this type of product. This difference is called basis. The basis can be positive (for goods, the storage of which entail costs, for example, oil and non-ferrous metals)and negative (for goods, ownership of which is up to the date of delivery brings additional benefits, e.g. precious metals).
the size of basis is not constant; it is subject to both systematic and random changes. The General tendency is to decrease the absolute value of a basis with the approach of the date of delivery on a futures contract.
it Should be noted that when there is an excessive demand for cash commodity market may enter a "inverted" state when the cash prices are higher than futures, and this excess can be very significant. Hedging strategies. Hedging strategy is a set of specific hedging instruments and methods of application of them to reduce the price risk.

All hedging strategy based on the parallel movement of the price of spot and futures prices, the result of which is the ability to compensate the futures market losses incurred on the market of the real goods. However, as we have already noted, this similarity is not perfect. Variability basis entail the residual risk is not curable by hedging.

There are 2 basic types of hedging hedge of the buyer and hedge seller.
Hedge buyer is used in cases, when the entrepreneur plans to buy in the future batch of goods and aims to reduce the risk associated to a possible increase in its rates. The basic modes of hedging future price of the acquisition is the purchase of the futures market, the futures contract, the purchase of an option type (call or sale of the option type put.
Hedge seller is used in the opposite situation, i.e. when it is necessary to limit the risks associated with a possible decrease in prices of goods. Ways of such hedging are selling a futures contract, the purchase of an option type put or sale of the option type (call.
let us Consider the main ways of hedging on the example of the hedged items the seller.

1. Hedging sale of futures contracts.
This strategy is to sell on the futures market of futures contracts in the amount corresponding to the volume of hedged party of real goods (a full hedge) or smaller (partial hedge).
the Transaction on the futures market is usually the time when:

1. the seller can confidently predict the cost of sold goods lot

2. on the futures market was the price level, providing a reasonable return.

for Example, if the manufacturer of gasoline wants to hedge against the future price of his sale, and the cost of refining crude can be estimated at the moment of its purchase, then at the same moment it enters the hedge, i.e. open positions in the futures market.
Hedging with futures contracts fix the price for future delivery of goods; in case of reduction of prices on the market "spot" loss of profits will be offset income on sold futures contracts (with a decrease in futures prices sold futures makes a profit). However, the flip side of the coin is the inability to use the growth in prices on the real market for additional income on the market "spot" in this case would be offset by losses on securities sold futures.
Another drawback of this method of hedging is the need to maintain a certain amount of the security Deposit of open futures positions. When falling spot prices on the real goods, maintaining the minimum size of the margin is not critical condition since in this case the exchange to the seller's account is refilled variation margin on sold futures contracts; however, with the growth of spot prices (and along with it the futures price) variation margin for open futures positions leaves the exchange account, and may require additional funds.

2. Hedging purchase option type put.
the Owner of the option type put has the right (but not the obligation, at any time sell a futures contract at a fixed price (the strike price of the option). Buy the option of this type, the seller fixes the minimum selling price, while retaining the ability to take advantage of favorable to him the price increase. With a decrease in the futures price is below the strike price, the holder fulfills his (or sells), compensating for the loss of the market of real goods; raising the price it renounces its right to exercise the option and sell goods for the highest possible price. However, unlike futures contract, upon purchase of an option award is paid, which disappears in a refusal.
collateral purchased option does not require.
Thus, hedging purchase option type put similarly to traditional insurance, the policyholder receives compensation in case of unfavorable for him developments (in case of insured accident and loses the insurance premium in the normal development of the situation.

3. Hedging the sale of the option type (call.
the Owner of the option type (call has the right (but not obliged) at any time to buy a futures contract at a fixed price (the strike price of the option). Thus, an option holder may perform it, if the current futures price is higher than the strike price. For the writer, the situation is reversed - they received for selling the option award he takes the responsibility to sell to the purchaser of the option is futures contract at the strike price.
security Deposit sold on the option type (call, is calculated similarly to the guarantee Deposit sold a futures contract. Thus, these two strategies are similar in many ways; the difference between them is that obtained by the seller of the option award limits its income futures position; as a result, the put option compensates for the reduction of goods price by an amount not greater than the obtained prize.

4. Other hedging instruments.
Developed a significant number of other ways to hedge on the basis of options (for example, sale of the option type (call and use the premium received for the purchase of the option type put with a lower strike price and the option type (call with a higher strike price).
specific hedging instruments must only be carried out after a detailed analysis of the needs of the business hedger, economic situation and prospects of the industry and the economy in General.
The easiest in terms of implementation is complete short-term hedging single party goods. In this case, the hedger opens on the futures market position, the volume of which accurately corresponds to the volume of the realized party of real goods and the period of execution of futures contract is chosen close to the date of execution of the real deal. Closing the position on the futures market at the moment of execution of deals on the spot.
However, not always real business needs can be met with such a simple scheme.

1. If necessary to hedge long-term contracts (more than 1 year), usually not even find the futures contract on the relevant performance period and with sufficient liquidity. In this case, have recourse to the practice, known as "roll-over" (roll-over). It is that first opens the position closer to the contract (for example, with terms of 6 months), and the improved liquidity of the more distant delivery time, position on the middle months of closed and open position remote.

2. More complicated is also the implementation of hedging in a continuous or near-continuous production cycle. In this case, on the futures market, there are open positions with different terms of delivery. The management of a constantly changing "cash-urgent ' position can be challenging.

3. Not always possible to pick up a commodity exchange, exactly corresponding to the object of the real deal. In these cases it is necessary to conduct additional analysis to determine which exchange goods or perhaps a group of products are best suited for hedging commodity position on the real market.

4. In some cases, when price changes vary, also, potential sales. The above hedging scheme are ineffective, because there is a situation of "недохеджирования" (the volume of hedged items is less than the volume of the real position) or "перехеджирования" (the volume of hedged items more than the amount of the actual position). In both situations, the risk increases. The output is a dynamic hedging, when there is a constant analysis of the compliance of the amount of urgent position of the situation in the real market and, if necessary, change the size.

the Cost of hedging.
The main difference hedge from other operations is that its purpose is not to generate profit, but to reduce potential losses.
As for a reduction in risk is almost always have to pay, hedging normally involves additional costs (in terms of direct costs and unrealized profit). List a few sources of such costs:

- make a deal, hedger transfers part of the risk of the counterparty; such counterparty can be another hedger (also reduces your own risk) or a speculator, the purpose of which is to close the position at a more favorable to itself the price. Thus, the speculator takes on additional risk, for which receives compensation in the form of real money (for example, when selling the option), or the possibility of obtaining them in the future (in the case of futures contract).

the Second reason for the costs of hedging is that any makes a deal impose costs in the form of Commission payments, and the difference between purchase and sale prices.

- Another article of expenses in foreign hedge with futures exchange-traded instruments is the security Deposit charged by the exchange to ensure compliance with its obligations of the parties in the transaction. The value of this Deposit is usually between 2% to 20% of the amount of the hedged position and determined, first of all, the variability of the price of the underlying commodity. The bid security required only for urgent instruments for which ownership can arise certain obligations, i.e., for futures sold options.

- Finally, another source implementation costs of hedging is a variation margin, calculated daily on futures, and in some cases - and the optional items. Variation margin is removed from the exchange account hedger, if the futures price moves against his term positions (i.e., in the direction of his position at the real market), and entered on the account, if the futures price moves in the opposite direction. As a variation margin hedger compensate for the possible losses on the market of the real goods. However, be aware that the movement of funds on urgent part of the transaction, usually preceded by the movement of funds on its cash parts.

for Example, in the case of hedging futures contracts, if hedger makes a loss on the market of real goods and earns a profit on the futures market, the variation margin on open futures he gets up fixing losses on real market (i.e., the situation is favorable for him). However, in the opposite case (loss fixed-term contracts and profits in the market "spot") hedger pays variation margin also to make a profit on the actual delivery of the goods, which may increase the cost of hedging.

the Risk associated with захеджированной position.
the Purpose of hedging is to reduce price risk. However, to completely eliminate the dependency of adverse price movements in the market of the underlying asset usually cannot, moreover, not enough elaborated hedging strategy may increase the company's exposure to price risk.
the Main type of risk, characteristic of the hedge is the risk associated with непараллельным price movement of the underlying asset and the corresponding term of the instrument (in other words to the variability of base). Basis risk is present due to several different steps of the law of supply and demand on the cash and derivatives markets. Rates of the real market and the futures market may not differ too much, because there are arbitrage opportunities, which, due to the high liquidity of the derivatives market, almost immediately cancelled out, however, some basis risk is always preserved.
Another source of basis risk is administrative restrictions on the maximum daily fluctuations in the futures price, installed on some markets. The existence of such restrictions can lead to the fact, that if the term positions need to close during strong price movements of the underlying asset, the difference between the futures price and the price of spot" can be rather large.
Another type of risk hedging is powerless to fight is the systemic risk associated with unpredictable changes in legislation, introduction of duties and excise taxes, etc. etc. Moreover, in these cases, hedging can only make the situation worse, because the term open position doesn't provide the exporter with the possibility to reduce the negative impact of these actions by reducing the volume of deliveries.

the Main principles of the hedge.
1. Effective hedging program does not aim to completely eliminate the risk; it is designed to transform the risk of unacceptable forms acceptable. The purpose of hedging is to achieve the optimal structure of the risk, i.e., the ratio between the benefits of hedging its cost.

2. When deciding on hedging is important to assess the magnitude of potential losses that the company may incur in case of refusal from the hedged items. If potential losses are insignificant (for example, have little effect on the income of the firm), the benefits of hedging may be less than the cost of its implementation; in this case, the company should refrain from hedging.

3. Like any other financial activities, hedging program requires the development of an internal system of rules and procedures.

4. The effectiveness of the hedge can be assessed only in the context of the (meaningless to talk about the profitability of hedging transactions or losses on hedging transactions in isolation from the main activities on the spot market)

What gives hedging.
Despite the costs associated with hedging, and numerous difficulties that may arise during the development and implementation of hedging strategies, its role in ensuring sustainable development is very great:
- there is a substantial decrease of the price risk associated with the procurement of raw materials and delivery of goods; hedging interest rates and exchange rates reduces the uncertainty of future financial flows and provides more effective financial management. As a result of reduced income fluctuation and improves production.
- a Well-built hedging program reduces both risk and costs. Hedging frees the resources of the company and helps the managerial staff to focus on the aspects of business in which the company has a competitive advantage, while minimizing the risks, which are not Central. In the end, hedging increases the capital, reducing the cost of using the means and stabilizing income.
- Hedge does not interfere with normal business operation and to ensure constant protection rates without the need to change the policy on reserves or conclude long-term forward contracts.
- In many cases, hedge facilitates attraction of credit resources: banks take into account mortgages being hedged at a higher rate; the same applies to contracts on delivery of finished products.

again hedging does not seek immediate task for the increase of profits; source of profit is the main production activity.

Practical steps.
to make use of fixed-term instruments to hedge the price risk, the company must perform the following steps:

1. Choose a trading platform and traded at her fixed-term contract that best meets its needs. In this step, additional analysis is needed, because there is not always a fixed-term contract, fully corresponding to the object of commercial transactions. In this case you have available futures choose such, changes in the rates of which most precisely corresponds to the growth rates of the real goods.

2. Choose clearing company (a company that controls the flow of funds and guaranteeing the fulfillment of obligations under transactions), accredited at the relevant exchange, and stock broker who will execute trading orders.

3. Fill in the standard form and sign service contracts.

4. Open an account at clearing company, and the transfer to him a certain amount of money is used as a security for fulfillment of obligations on open positions (usually about 10% from the planned sum of the deal). Many of the exchange and clearing company set a minimum amount of funds that must be deposited to the trading account when opening (usually $ 10,000).

5. Develop a strategy for undertaking the hedge.

Hedges of basic goods.
oil and Oil products.
the Main volume of trade in futures contracts on oil and oil products focused on two stock exchanges in London at the International Petroleum Exchange (IPE - International Petroleum Exchange) and on the new York Mercantile Exchange (NYMEX New York Mercantile Exchange).
NYMEX.
are traded On the NYMEX futures and options on futures on the following petroleum products:
- crude light oil (Light Sweet)
- fuel oil
unleaded gasoline

trading Volumes for 1997-1998 year are listed in the following table:

Contract

Futures

Options

Volume (million tons)

Crude oil

28 964 383 7 476 904 4 900

fuel Oil

8 619 979 828 494 1 350

Unleaded gasoline

7 880 645 754 812 1 000
Note.
When translating volume indicators in the weighting used the following factors:
crude oil - 7.33 bar/so
fuel oil - 7.0 bar/so
gasoline - 8.5 bar/so

1. The crude oil.
world trade Volume of crude oil exceeds the volume of trade of any other commodity. On NYMEX are traded futures and options on light light crude oil (low sulfur content). It is the most liquid in the world of fixed-term contract. Due to the high volume of trade and market transparency, it is used as one of the main global standards of the oil prices.
are traded On the NYMEX futures contracts and options on futures contracts American type (an option holder can execute it at any time before the closing of the relevant futures contract).
the Object of delivery: in addition to oil brand 'Light Sweet' under the contract may be delivered also other types of oil (including "Brent") discounts (or allowances)specified in the specifications.
the Volume of futures contract: 1000 barrels.

Trading hours: 9:45 - 15:10 (main session), 16:00 - 8:00 (e-Commerce)
Months of delivery: simultaneously traded 36 monthly futures contracts (each month for the next 3 years) and long-term futures (3, 4, 5, 6 and 7 years)). The main trading volumes typically focus on three closest contracts. Options - 12 consecutive months, and 18, 24 and 36 months of execution in June and December).
the price increment: 1 cents/barrel (10 $ /contract)
the Maximum price movement for the day: the two nearest futures contracts - 15 USD/barrel ($15,000/contract), stock options limits are not installed.
security Deposit: 1620/Dol contract

2. Unleaded gasoline.
On NYMEX are traded futures contracts and options on futures contracts of the American type.
the Object of delivery: unleaded gasoline.
the Volume of futures contract: 42000 gallons (1,000 barrels).
Trading hours: 9:45 - 15:10 (main session), 16:00 - 8:00 (e-Commerce)
Months of delivery: simultaneously traded 18 monthly futures contracts. The main trading volumes typically focus on three closest contracts. Options - 12 consecutive months.
the price increment: 0.01 cents/gallon ($4.2/contract)
the Maximum price movement for the day: the two nearest futures contracts - 40 cents/gallon ($16,000/contract), stock options limits are not installed.
security Deposit: 1620/Dol contract

3. Fuel oil.
fuel Oil is the second largest faction of oil (after gasoline). Initially, the participants in the derivatives market on NYMEX were mainly large wholesalers and consumers of fuel oil, but in recent years more and take part in trade and consumers manufacturers of diesel and aviation fuel (these products ' prices in the world market are usually set on the basis of the futures price for oil on NYMEX with stable prize).
are traded On the NYMEX futures contracts and options on futures contracts of the American type.
the Object of delivery of fuel oil (heating oil N2).
the Volume of futures contract: 42000 gallons (1,000 barrels).
Trading hours: 9:45 - 15:10 (main session), 16:00 - 8:00 (e-Commerce)
Months of delivery: simultaneously traded 18 monthly futures contracts. The main trading volumes typically focus on three closest contracts. Options - 12 consecutive months.
the price increment: 0.01 cents/gallon ($4.2/contract)
the Maximum price movement for the day: the two nearest futures contracts - 40 cents/gallon ($16,000/contract), stock options limits are not installed.
security Deposit: 1620/Dol contract

International Petroleum Exchange
On the IPE traded futures and options on североморскую Brent and diesel fuel.
trading Volumes for the period from 1.04.1998 to 31.03.1999 are given in the following table:

Contract

Futures

Options

Volume (million tons)

Crude oil

13 988 556 365 930

1 958

Diesel fuel

5 713 276 93 436 716

trade Organization in London in General is similar to new York, but there are some differences:
- Trading hours: 10:00 - 20:15 GMT (7:00 - 17:15 MSK)
- the IPE is not set limitations on daily price fluctuations, that simplifies input in hedge and exit during the strong price movements;
- if the position remained open at closing of the trading contract, the calculation can be carried out in monetary form (without having to make or receive delivery of real goods)
options on futures are marginable, i.e., debiting and crediting the variation margin is carried out according to the same rules as for futures (this, of course, respected the fundamental ruled - maximum margin charged by purchased option may not exceed the paid premium)
- a security Deposit on both contracts is $1600

In conclusion we provide real examples of hedging oil products:
1. ZAO "LUKOIL-Perm". The impetus for the implementation of the hedge for the company was the fall of crude oil prices in the second quarter of 1996, from 22 to 18 dollars a barrel on the one hand, and the crisis of distribution of oil products on the domestic market. The first experience of hedging was the sale of 15 January 1997 30 contracts on fuel oil (Heating Oil on the NYMEX, this was захеджировано 10 % of the exports of oil products. Because there is a significant difference in time of trading on the IPE and NYMEX (5 hours), the company has transferred the trade in London. Simultaneously began hedging of crude oil. For the period from January to July 1997, there were 7 of transactions with the futures contracts on the IPE and NYMEX. Trading volume totaled 180 contracts on fuel oil, which is approximately equal to 20 000 tons, and 300 contracts on oil - 39 484 tons. Over the entire period, from futures operations was obtained variation margin in the amount of 115645 US dollars, which is covered loss on the spot market. The average duration of one transaction (difference between the opening and closing positions) - 8 days. Total length of all transactions - 56 days or 28% of the full period of maintaining the account (197 days). Trading volumes, of course, cannot be compared with the volumes of export of the company. But this experience was the first, and it seems to be a success.

2. Another example of the hedge can be experience of the state of Texas. After the fall of oil prices in 1986 with 35 dollars per barrel to $ 11 situation in which the state Treasury, by a quarter-dependent receipts in the form of oil duties, was practically empty, as the staff could not collect the expected amount (amount of the shortfall in fees of $ 3.5 billion $). To ensure that such a situation does not occur again in the future, the programme was designed to hedge tax revenues, with the help options. All deals were concluded on the NYMEX. The operation began in September 1991, to hedge was selected price 21.5 $ per barrel (during the time of the hedged items (2 years) price level is changed from 22,6 $ 13,91 $ per barrel). Hedging program was composed so that was fixed minimum price of oil (21,5 $ per barrel), and when oil prices rise staff received additional profit. This technique has allowed the government within two years to earn a stable income, and considerable fluctuations of oil prices.

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