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Securing Risks
Commodity Forward

Commodity Forward

Hedge the risk of changing commodity market prices

A team of specialists will help you choose the optimal strategy

A team of specialists will help you choose the optimal strategy

Negotiate each transaction with a dealer over the telephone

Negotiate each transaction with a dealer over the telephone

Choice of several product modifications

Choice of several product modifications

Keep track of all your transactions with confirmations

Keep track of all your transactions with confirmations

About Commodity Forward

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

Risks

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