Commercial Hedger

AAA

DEFINITION of 'Commercial Hedger'

A corporation that purchases futures to control its costs. When a corporation uses a commodity in the creation of its product or service, hedging can help to keep that commodity affordable. A construction company, for example, could be called a commercial hedger if it purchased steel futures to control its rebar costs. Another example is an airline company that purchases crude oil futures to balance its fuel costs.

INVESTOPEDIA EXPLAINS 'Commercial Hedger'

Commercial hedging is a way for companies to reduce price risk by locking in the price of production goods. This practice can be used in almost any line of business, but it is common in agriculture and banking. Companies also commonly hedge against interest-rate risk and foreign-exchange risk. Hedging does not eliminate the possibility of a corporation being negatively impacted by price changes, but it can soften the blow. This is similar to an individual purchasing homeowner's insurance. The insurance doesn't eliminate the possibility of his house burning down, but does drastically reduce the costs he'll have to pay if it does.

RELATED TERMS
  1. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  2. Price Risk

    The risk of a decline in the value of a security or a portfolio. ...
  3. Derivative

    A security whose price is dependent upon or derived from one ...
  4. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  5. Futures

    A financial contract obligating the buyer to purchase an asset ...
  6. Interest Rate Risk

    The risk that an investment's value will change due to a change ...
RELATED FAQS
  1. No results found.
Related Articles
  1. Options & Futures

    Hedging Basics: What Is A Hedge?

    This strategy is widely misunderstood, but it's not as complicated as you may think.
  2. Active Trading

    Commodities: The Portfolio Hedge

    These diverse asset classes can provide downside protection and upside potential. Find out how to use them.
  3. Options & Futures

    Fueling Futures In The Energy Market

    The energy market influences every aspect of our lives, and these four options are its driving force.
  4. Options & Futures

    A Beginner's Guide To Hedging

    Learn how investors use strategies to reduce the impact of negative events on investments.
  5. Mutual Funds & ETFs

    Are These the Top Inverse ETFs of 2015?

    Short shy? Here's a list of top inverse ETFs to help you profit from a decline in the value of an index or group of stocks.
  6. Stock Analysis

    How Are Interest Rates Affecting Annaly Cap Mgmt?

    Annaly Capital Management reported a net loss of $658 million thanks to the mortgage REIT's strategy of hedging its exposure to higher interest rates.
  7. Investing

    The Best Way To Approach The Currency Hedge

    Currency is going to continue to be an important factor in investment choices, particularly as the dollar strengthens.
  8. Options & Futures

    Give Yourself More Options With Real Estate Options

    Real estate options have many benefits, including a smaller initial capital requirement.
  9. Investing

    Hedged ETFs That Help You Cushion Currency Impact

    If you’re an investor holding non-U.S. assets, the returns on your investments will be affected when you translate your investment from its local currency
  10. Options & Futures

    How to Use Commodity Futures to Hedge

    Both producers and consumers of commodities can use futures to hedge. We explain, using a few examples, how to achieve commodity hedging with futures.

You May Also Like

Hot Definitions
  1. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  2. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  3. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  4. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  5. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  6. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
Trading Center