Commercial Hedger

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.

BREAKING DOWN '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. Selling Hedge

    A hedging strategy with which the sale of futures contracts are ...
  2. Short The Basis

    A futures strategy involving the purchase of a futures position ...
  3. Buying Hedge

    A transaction that commodities investors undertake to hedge against ...
  4. Long The Basis

    An individual or company that owns or has purchased a commodity ...
  5. Commercial

    Relating to commerce. In the investment field, the term "commercial" ...
  6. Double Hedging

    Hedging a position by using futures and options, thereby doubling ...
Related Articles
  1. Options & Futures

    How To Lock In Low Oil & Gas Prices

    We provide a quick overview of how companies can manage the risk of adverse moves in commodity prices by hedging in the futures market.
  2. Professionals

    How Hedgers Utilize Basis

    How Hedgers Utilize Basis
  3. Insurance

    Futures Fundamentals: The Players

    The players in the futures market fall into two categories: hedgers and speculators. Hedgers Farmers, manufacturers, importers and exporters can all be hedgers. A hedger buys or sells in the ...
  4. Term

    A Beginner's Guide To Hedging

    Hedging is a practice every investor should know about.
  5. Options & Futures

    A Beginner's Guide To Hedging

    Learn how investors use strategies to reduce the impact of negative events on investments.
  6. Professionals

    Hedging

    Hedging
  7. Professionals

    Hedging

    Hedging
  8. Economics

    4 Ways Airlines Hedge Against Oil

    Understand what a fuel hedge is and why an airline company would want to implement a hedging strategy. Learn about the different fuel hedging strategies.
  9. Professionals

    Hedge Fund Basics

    CFA Level 1 - Hedge Fund Basics. Learn the historical background of hedge funds and how they operate today. Discusses various hedging strategies and fund objectives.
  10. Options & Futures

    Hedging Basics: What Is A Hedge?

    This strategy is widely misunderstood, but it's not as complicated as you may think.
RELATED FAQS
  1. What is the difference between hedging and speculation?

    Hedging involves taking an offsetting position in a derivative in order to balance any gains and losses to the underlying ... Read Answer >>
  2. Which of the following would be considered a short hedge ...

    The correct answer is a) Long the commodity and short the futures Read Answer >>
  3. What is a cross hedge?

    Cross hedging is when you hedge a position by investing in two positively correlated securities or securities that have similar ... Read Answer >>
  4. What types of items can you buy futures for?

    Learn what items futures may be purchased for, what a futures contract is and discover how the futures markets have greatly ... Read Answer >>
  5. What happens if you don't hedge your investments?

    Learn the purpose, advantages and disadvantages of hedging, and find out how to utilize hedging to enhance an overall investment ... Read Answer >>
  6. Do hedge funds invest in commodities?

    Learn about hedge funds that invest in commodities. Read about Commodity Trading Advisors who focus specifically on trading ... Read Answer >>
Hot Definitions
  1. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  6. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
Trading Center