Learn How To Use Hedging To Manage Risk

This white paper sets out the basic principles of using hedging instruments to mitigate exposure to commodity price movements. Examples illustrate: How hedging works to measure and manage spread risk; and how AspectCTRM supports price risk management and hedging.

These are just theoretical examples we have created, although the price data is real and correct. This paper deliberately ignores secondary costs such as TC/RC, Freight, insurance, taxes and duties etc. Clearly these have an impact on P&L which AspectCTRM can also monitor and manage. This paper focuses only on exposure and risk management. This paper uses Lead as the commodity traded and hedged in this case using the LME Lead Future contract. However the principle applies to almost any commodity including iron ore, coal, precious or other base metals, and the hedging instrument may be either exchange traded such as from the LME or CME, or an Over the Counter (OTC) instrument such as a Swap.