1st Edition
How to Hedge Metals A Complete Guide to Hedging for Companies that Produce, Consume, and Trade Physical Metals
How to Hedge Metals is an important resource for all traders, whether new graduates or seasoned directors, and is written in simple, precise, and clear terms. It is engaging and accessible – a good read rather than a reference book – and provides solutions to the problems caused by metal price volatility. It walks through the entire hedging process, starting long before the first futures trade, with a discussion on risk tolerance and appetite. It explains how the world’s major futures exchanges work; but more importantly, it explains how futures and options can solve physical trading problems. Written entirely from a hedger’s perspective, How to Hedge Metals answers questions on issues such as Quotational Periods, option premiums, and backwardations.
The aim of the book is not to promote hedging; some companies will learn how to minimise risk by changing their physical contracts, while others may conclude that the level of risk they face is acceptable. For those who decide to hedge there is a step-by-step guide to preparation, implementation, and evaluation of a hedging strategy, as well as case studies to illustrate how strategies have gone wrong in the past. Whatever their business model and knowledge of commodity markets, metal producers, fabricators and traders will understand what they can realistically achieve with a hedging program, and how to achieve it. This book deals with real world problems – contracts that are not in convenient 25 tons multiples, customers, and suppliers who change their minds, shipments that are delayed and markets that inexplicably move in ways that seem to defy the laws of supply and demand.
Written by a respected industry expert who has worked for trading companies, banks, brokers, and the London Metal Exchange (LME), it uses simple language and engaging graphics to show how futures and options can offer protection from the increasing volatility of metal prices.
Acknowledgements
Introduction
About the Author
Chapter 1: An Introduction to the Concept of Hedging
Chapter 2: Preparation for a Hedging Operation
Chapter 3: Corporate Governance and Risk Management
Chapter 4: Alternatives to Future Hedges
Chapter 5: The Origins of Commodity Exchanges
Chapter 6: Trading on Exchanges
Chapter 7: Physical Services of Exchanges
Chapter 8: Setting Up a Hedging Department
Chapter 9: Preparation for the First Trade
Chapter 10: Physical Contracts
Chapter 11: The Futures Hedge
Chapter 12: Introduction to Options
Chapter 13: Hedging with Futures versus Options
Chapter 14: Conclusions
Glossary
Appendix 1
Appendix 2
Appendix 3
Biography
Lesley began her career in a physical metal trading company where she was responsible for hedging the company’s exposure to metal prices. She moved to an LME ring-dealing member as a broker and began to advise a wide range of clients on risk management. During her career she worked with the Russian government, the World Bank and many of the world’s biggest metal companies. She was a consultant to the LME in London on Training and Education, moved to the LME’s office in Singapore then to Hong Kong. Lesley has presented programmes on Business and Economics for BBC Radio and wrote a financial thriller called “Forged Metal.” She has an MA from Glasgow University in English and Political Philosophy, a Post Graduate Diploma in Corporate Governance and is a former Fellow of the Hong Kong Institute of Directors.
