Freight Derivatives

Dictionary Says

Definition of 'Freight Derivatives'

A financial instrument's value that is derived on the future levels of freight rates, such as "dry bulk" carrying rates and oil tanker rates. Freight derivatives are used most often by end users (such as ship owners and grain-houses) and by suppliers (such as integrated oil companies and international trading corporations) to mitigate risk and hedge against price spikes in the supply chain.

As with all derivatives, market speculators, like hedge funds and individual traders, participate in both the buying and selling of these contracts providing for a new, more liquid, marketplace.
Investopedia Says

Investopedia explains 'Freight Derivatives'

Freight derivatives now include exchange-traded futures (ETFs), swaps futures and the older "Forward Freight Agreements", which were sold over-the-counter. Freight derivatives are most often used to hedge risks against large swings in price, a model popularized in the agriculture and commodities industries.

Freight derivatives are a relatively new product in the global marketplace, but the advent of clearing services has brought increased safety, and with it liquidity, into the business.

Articles Of Interest

  1. Taking A Look Behind Hedge Funds

    Hedge funds can draw returns well above the market average even in a weak economy. Learn about the risks.
  2. Introduction To Weather Derivatives

    Learn about a financial instrument that makes temperature a tradable commodity.
  3. How Companies Use Derivatives To Hedge Risk

    Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices.
  4. Hedge Funds Hunt For Upside, Regardless Of The Market

    Hedge funds seek positive absolute returns, and engage in aggressive strategies to make this happen.
  5. How are futures used to hedge a position?

    Futures contracts are one of the most common derivatives used to hedge risk. A futures contract is as an arrangement between two parties to buy or sell an asset at a particular time in the future ...
  6. What is the difference between forward and futures contracts?

    Fundamentally, forward and futures contracts have the same function: both types of contracts allow people to buy or sell a specific type of asset at a specific time at a given price. However, ...
  7. 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 asset. Hedging attempts to eliminate the volatility associated with the ...
  8. Futures Fundamentals

    For those who are new to futures but want a solid understanding of them, this tutorial explains what futures contracts are, how they work and why investors use them.
  9. Introduction To Treasury Inflation-Protected Securities (TIPS)

    If you want to protect your portfolio from inflation, all you need are a few TIPS.
  10. Biggest Contrarian Opportunities in ETFs

    Contrarian investing is a well-known strategy in which an investor takes a position contrary to the majority of the investing world or against any prevailing trends. The methodology was perhaps ...
comments powered by Disqus
Marketplace
Hot Definitions
  1. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...
  2. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.
  3. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.
  4. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.
  5. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...
  6. Bailment

    The contractual transfer of possession of assets or property for a specific objective.
Trading Center