Risk Management in Commodities Trade
Risk Management through Commodity Hedging for Commodity Traders, Processors and User Industries By: Vijay Sardana http://www.arpl.in All commodity companies are worried about global uncertainties and their impact on commodity prices. It is high time, when commodity players and processors adopt hedging to minimize their business risks. What is Hedging? Commodity hedging is when a company offsets risks arising out of fluctuations in raw-material prices. How does it Work? For instance, if a manufacturer of agro products expects the prices to rise in the next three months, he will buy a position in the futures market at current prices to offset the likely price increase. Similarly, if the prices are likely to fall, he will sell in the futures market at current prices against the physical goods he holds. Who can Hedge? Any manufacturer that faces risks due to volatile commodity prices can use the commodity derivatives to hedge the commodities. T
