Freight derivatives include exchange-traded futures, futures, futures contracts, futures contracts (FFAs), container freight swap agreements, container cargo derivatives and physical delivery derivatives. Options are the most advanced derivatives that are increasingly being used in shipping lately. This happens because, as we will see later, they offer even more flexibility than common FFA. Unlike futures and futures contracts that impose a bargaining obligation on counterparties, the option allows the buyer to decide whether to do the same and then negotiate. However, the seller of the option has no choice if the buyer chooses to do the same. Options are also traded on both the stock markets and the CTA. There are two types of options. Call options and selling options. Call options give someone the right to buy an asset at a certain price, while put options give someone the right to sell an asset. For the purchase of an option, you pay the premium, whereas the buyer does not need to write a margin, because he has the opportunity to exercise the same thing and therefore poses no risk to his counterparty. On the other hand, a margin must be made by the seller as collateral.
There are 4 main strategies that are often used in options trading: we also make swaps, but in other sectors of the marine industry (finance, accounting) to manage the risk associated with interest rate fluctuations (interest rate swaps). Derivatives are used for hedging, in which Hedger enters into a futures/advance contract contrary to its position in the physical market, in order to counteract changes in the value of the spot position by offsetting changes in the value of the derivative. They are also used for cargo projections. If you look at derivatives trading, you can get an idea of the future movements of the physical market. Studies have shown that FFAs can be used to predict the direction of the spot market for about 2 months. Finally, derivatives are also used for speculative purposes, as transaction costs are much lower than in physical markets. Speculators – who are not necessarily shipping professionals – help the derivatives market because they provide market liquidity. FFAs are financial instruments that are traded in principle, mainly within the framework of the average charter values in time for the Capesize, Panamax, Supramax and Handysize vessels. Our dedicated freight optimization team is also able to offer a full range of options tailored to the individual needs of customers. The London-based Baltic Exchange presents the Daily Baltic Dry Quality Index as a market barometer and leading indicator of the maritime industry. There are investors An overview of the price of transferring important raw materials by sea, but it also helps to lease freight derivatives. The index includes 20 shipping routes, measured on the basis of timing, and covers various major bulk carriers, including Handysize, Supramax, Panamax and Capesize.
At this point, we look at an example of how this works: in February 2016, a trader buys three shipments of NOPAC grain in Japan, which will be transported when the grain season begins: one shipment in August, one in September and one in October. The distributor is concerned that the shipping market will rise in August and wants to secure its freight against such a potential increase. On the other hand, a Panamax shipowner, who fixed his ship when the charter opened in mid-July in the Far East, fears that the market will loosen again, and that is why he wants to sell an FFA. The owner and charterer negotiate and set in August 8,000 USD/day for a duration of 50 days (estimated duration of the trip) and the billing price based on BPI-Route 3a (the Trans-Pacific route for Panamax-Bulker s) as an average of the last 7 indices published in August 2016.