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What is Hedging: As per the business directory, Hedging is a risk management strategy used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities. In effect, hedging is a transfer of risk without buying insurance policies. Hedging is done by the various risk derivatives. To understand this, it is important to first understand the basics of risk derivatives.
Broadly speaking there are two types of risk derivatives. Exchange traded and over the counter derivatives. As the name suggests, exchange traded derivatives are traded in the international exchanges (for example New York Mercantile exchange, NYMEX), where standard contracts, terms of which have been defined by the exchange are traded.
Over the counter (OTC) derivatives are traded through dealers and the contracts are tailor made. OTC derivatives come with the risk of other party not fulfilling his obligations.
In the trade exchange, future contracts and Options contract derivative are normally traded and Oil/gas companies choose these two hedging contracts.
To understand th...
Broadly speaking there are two types of risk derivatives. Exchange traded and over the counter derivatives. As the name suggests, exchange traded derivatives are traded in the international exchanges (for example New York Mercantile exchange, NYMEX), where standard contracts, terms of which have been defined by the exchange are traded.
Over the counter (OTC) derivatives are traded through dealers and the contracts are tailor made. OTC derivatives come with the risk of other party not fulfilling his obligations.
In the trade exchange, future contracts and Options contract derivative are normally traded and Oil/gas companies choose these two hedging contracts.
To understand th...
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About Capt Rajeev Jassal
Capt. Rajeev Jassal has sailed for over 24 years mainly on crude oil, product and chemical tankers. He holds MBA in shipping & Logistics degree from London. He has done extensive research on quantitatively measuring Safety culture onboard and safety climate ashore which he believes is the most important element for safer shipping.
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