You can agree today upon the purchase/sales price of a commodity to be delivered at a particular time in the future.  Whatever the market price of the commodity is upon expiry, your company will buy or sell the commodity at the forward price set as part of the net settlement of this deal.  Your company will thus settle accounts with its partner at the actual price upon expiry when the physical delivery takes place, while there will be a net settlement with the bank for the difference between the forward price and the prevailing market price.

The potential gains and losses on the transaction can be unlimited in theory.  The gains and losses of the transaction can be offset by the balance of the gains and losses of the underlying transaction if the company had identified its underlying exposure and market status properly.  

The aim of these transactions is to stabilize the company’s earnings not to realise a financial profit on a standalone basis.

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For a specific period fixed in advance, the client fixes the price at which a given commodity will be bought or sold.  By means of this transaction, the client acquires complete protection against adverse price changes, without, however, being able to profit from advantageous changes. This deal is free of charge. At maturity, there is a net settlement using the average of the market prices recorded in time intervals determined in advance.

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option – The buyer of an option acquires a right to buy or sell a given commodity in a period (or at a date) set in advance, at a price fixed in advance. In this sense, an option is a kind of insurance where premium is charged upfront.  If you buy an option, you will enjoy full protection against adverse price changes, and at the same time benefit from a potential favourable turn in the price trend. At maturity, there is a net settlement.

• European option: for a specific date, net settlement is against the market price available upon expiry
• Asian option: for a specific period in time, net settlement is against the average of the market prices recorded in pre-determined time intervals (daily) during the specified period

collar – This transaction is the combination of two options, and is usually offered at zero cost. The collar sets a specific price range for the forward or swap price resulting, at one boundary, in protection against adverse price change, and at the other boundary, in a possibility to profit from favourable price changes to some extent.  At maturity, there is a net settlement. The collar can be built up with European or Asian options as well.

choose from the options below:​