Commodity Forward

Hedge the risk of changing commodity market prices.

How may we
assist you?

No risk for you
of changing
commodity prices

Select a product modification that suits your needs.

Assistance and proposed strategy by a team of specialists

Negotiate each transaction with a dealer over the telephone

Keep track of all your transactions with confirmations

USEFUL INFORMATION

  • Method for hedging commodity risk associated with the development of prices of specific commodities
  • Intended for individuals and legal entities, both domestic and foreign
  • Forward price of a commodity is compared with the commodity closing price published on dates agreed upon at transaction closing date, usually the end of a reference period
  • Difference in prices for the agreed commodity quantity is paid by the party in disadvantageous position usually 2 to 5 business days from the end of the reference period
  • Transaction settlement is always financial, and never physical exchange
  • Settlement for the given reference period: PA = NA * abs(CSP – P), where: 
    • PA – payment (settlement) amount
    • NA – negotiated commodity amount
    • CSP – cash settlement price
    • P – agreed fixed price
  • Transaction counterparties may agree on early termination of commodity forwards during their term
  • If a commodity forward is terminated early, parties settle the market value in a single payment - the transaction and any future liabilities thereby cease to exist 

Available modifications 

Quanto

  • The underlying commodity is listed in a currency other than the settlement currency

Basket

  • The underlying asset is a basket of several commodities

Deferred price fixing

  • Fixed price is not known on the day the transaction is negotiated
  • Fixed price is determined on the basis of daily quoted averages over a specific future period
  • Profit or loss from commodity transactions is affected by commodity price fluctuations
  • Clients would incur loss if commodity prices move against them during individual reference period – the clients’ payments exceed the amount to be paid by the bank
    • In this case, the client pays the difference between the two payments to the bank
    • In case the transaction was negotiated as a hedging instrument, clients regard the loss as the cost of hedging (hedging protects clients from significant commodity price fluctuations that could result in serious financial problems)
  • Consult Markets in Financial Instruments Directive
  • Receive current information about financial market developments