Some pointers:
Hedging is the process of using derivative instruments - futures, options and swaps - to manage the risks imposed by volatile price movements. Familiarity with the basic building blocks of the process provides the novice with the tools to address even the most complex of derivatives. This is because they are all built from relatively simple concepts. That is not to say that hedging is simple. In concept it is, but in practice hedging can get quite complex. Yet all hedging is developed from quite straight forward building blocks. By thoroughly…..But by thoroughly understanding the building blocks with which all the complex derivatives hedging strategies are developed one can rapidly acquire the know-how to hedge away unwanted price risk
At Steel Derivatives we take the raw novice and progressively develop their hedging skill set. Rather than presenting our client with a hedging strategy, we help you develop your own strategy, tailored to your business model.
And further, Steel Derivatives acts in an advisory capacity to help you develop and install the appropriate controls and reporting mechanisms to ensure your hedge desk is appropriately managed. Because hedging should not make a profit. The purpose of a hedge desk is to provide guaranteed stable incomes on the contracts it is instructed to hedge; incomes that will not vary, produce neither a loss nor a profit, not matter what the volatility in product pricing. If your hedge desk does make a profit, or indeed a loss, then de facto it has been speculating. So, to prevent your hedge desk gambling with your company's profitability, all firms necessarily need a set internal controls.
The way many financial institutions view hedging is that, if derivatives instruments are available to hedge away unwanted price risk, then, not to hedge away those risks, is to speculate that those risks will remain favourable to your business model. If, when hedging instruments are available, one retains exposure to price risk, capital lenders will tend to view you as a speculator, one who gambles on pricing remaining favourable. De facto your firm is a higher credit risk. That will tend to dictate less
Steel Derivatives mission is knowledge communication: communicating our knowledge on derivative instruments - steel futures, options, and swaps - to the steel industry.
- Your hedge desk should not make a profit. If your hedge desk does make a profit, then it has been speculating.
- Not to hedge, is to speculate.
Hedging is the process of using derivative instruments - futures, options and swaps - to manage the risks imposed by volatile price movements. Familiarity with the basic building blocks of the process provides the novice with the tools to address even the most complex of derivatives. This is because they are all built from relatively simple concepts. That is not to say that hedging is simple. In concept it is, but in practice hedging can get quite complex. Yet all hedging is developed from quite straight forward building blocks. By thoroughly…..But by thoroughly understanding the building blocks with which all the complex derivatives hedging strategies are developed one can rapidly acquire the know-how to hedge away unwanted price risk
At Steel Derivatives we take the raw novice and progressively develop their hedging skill set. Rather than presenting our client with a hedging strategy, we help you develop your own strategy, tailored to your business model.
And further, Steel Derivatives acts in an advisory capacity to help you develop and install the appropriate controls and reporting mechanisms to ensure your hedge desk is appropriately managed. Because hedging should not make a profit. The purpose of a hedge desk is to provide guaranteed stable incomes on the contracts it is instructed to hedge; incomes that will not vary, produce neither a loss nor a profit, not matter what the volatility in product pricing. If your hedge desk does make a profit, or indeed a loss, then de facto it has been speculating. So, to prevent your hedge desk gambling with your company's profitability, all firms necessarily need a set internal controls.
The way many financial institutions view hedging is that, if derivatives instruments are available to hedge away unwanted price risk, then, not to hedge away those risks, is to speculate that those risks will remain favourable to your business model. If, when hedging instruments are available, one retains exposure to price risk, capital lenders will tend to view you as a speculator, one who gambles on pricing remaining favourable. De facto your firm is a higher credit risk. That will tend to dictate less
Steel Derivatives mission is knowledge communication: communicating our knowledge on derivative instruments - steel futures, options, and swaps - to the steel industry.
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