Physical Delivery in Futures: What It Means and How It Works
Physical delivery in futures defined Physical delivery in a futures contract means the actual commodity changes hands at contract expiry — the seller delivers the physical goods and the buyer receives them. This is the alternative to cash settlement, where contracts close with a cash payment equal to the difference between the contract price and […]
What Is Structured Commodity Finance? A Complete Guide
Structured Commodity Finance defined Structured Commodity Finance (SCF) is a specialised form of secured lending in which the loan or credit facility is collateralised against a physical commodity — crude oil in storage, a grain shipment, a coffee warehouse receipt — rather than the general creditworthiness of the borrower. It exists primarily to fund commodity […]
Commodity Price Risk: Definition, Types, and How to Hedge It
Commodity price risk defined Commodity price risk is the financial exposure a business faces when changes in commodity prices affect its costs or revenues. A manufacturer that uses copper is exposed to commodity price risk when copper prices rise — its production costs increase. A copper miner is exposed when copper prices fall — its […]
What Is First Notice Day (FND) in Futures Trading? Definition and Examples
First notice day defined First Notice Day (FND) is the first calendar day on which the holder of a short futures contract — someone who has sold futures — can submit a delivery notice to the exchange clearinghouse, signalling their intention to deliver the underlying physical commodity. FND is typically the last business day of […]
How to Hedge Commodity Price Risk: A Practical Guide to Futures, Options and Collars
Commodity price risk hedging defined Hedging commodity price risk means taking a financial or contractual position that offsets the potential loss from an adverse move in commodity prices. A company that buys copper for manufacturing can hedge by buying copper futures contracts — if copper prices rise, the futures position gains value and offsets the […]
Initial Margin vs Variation Margin: How Both Types of Collateral Work in Futures and OTC Markets
Initial margin vs variation margin defined Initial margin is collateral posted before a trade is opened — a deposit held against the possibility that the position loses money before it can be closed out. Variation margin is the daily cash settlement of gains and losses on an open position — moving money between winner and […]