Resources | Global Futures
Trading Platforms

Monday, June 27, 2016 - Weekly e-Newsletter - Issue No. 711

Receive this newsletter by email

Economic Calendar
Date
ET
Release
For
Consensus
Prior
Jun 27
8:30 AM
International Trade in Goods
May
NA
-$57.5B
Jun 28
8:30 AM
GDP - Third Estimate
Q1
NA
0.8%
Jun 28
8:30 AM
GDP Deflator - Third Estimate
Q1
NA
0.6%
Jun 28
9:00 AM
Case-Shiller 20-city Index
Apr
NA
5.4%
Jun 28
10:00 AM
Consumer Confidence
Jun
NA
92.6
Jun 29
7:00 AM
MBA Mortgage Index
06/25
NA
2.9%
Jun 29
8:30 AM
Personal Income
May
NA
0.4%
Jun 29
8:30 AM
Personal Spending
May
NA
1.0%
Jun 29
8:30 AM
Core PCE Price Index
May
NA
0.2%
Jun 29
10:00 AM
Pending Home Sales
May
NA
5.1%
Jun 29
10:30 AM
Crude Inventories
06/25
NA
-0.917M
Jun 30
8:30 AM
Initial Claims
06/25
NA
259K
Jun 30
8:30 AM
Continuing Claims
06/18
NA
2142K
Jun 30
9:45 AM
Chicago PMI
Jun
NA
49.3
Jun 30
10:30 AM
Natural Gas Inventories
06/25
NA
62 bcf
Jul 1
10:00 AM
ISM Index
Jun
NA
51.3
Jul 1
10:00 AM
Construction Spending
May
NA
-1.8%
Jul 1
2:00 PM
Auto Sales
Jun
NA
5.16M
Jul 1
2:00 PM
Truck Sales
Jun
NA
8.55M
 
This Week in History

6/28/1919 - Keynes prediction that the penalties imposed on Germany for WWI would have global economic repercussions came true when world plunged into depression in 1920s

6/29/1906 - President Roosevelt signed into law the Hepburn Act, giving the Interestate Commerce Commission authority to set maximum rates for railroads

7/1/1862 - Congress signed Revenue Act, which included an income tax and the creation of the Bureau of Internal Revenue

BACK TO BASICS
What is a Hedge Trader?

The Long Hedge
If a food manufacturer (buyer) is expecting to purchase corn in several months’ time, that manufacturer may elect to buy (or go long) futures now, matching the quantity of physical corn he will buy in the “spot” or cash market later. If the price of corn rises significantly, the buyer will have locked-in a price (the amount he paid for the contract) that is (hopefully) lower than the current price of corn. If the buyer opts for delivery, the bushels of corn will be purchased and delivered at the price at which he purchased the futures contract(s). If the buyer decides to offset the futures contract prior to the delivery date, then the profit resulting from the appreciation of the futures contract may compensate for the rise in price of the physical corn which he will purchase in the cash market.

The Short Hedge
Let’s suppose that the price of corn were to significantly fall in several months’ time. For the farmer (the seller), this can mean a significant reduction of revenue from the impending sale. In anticipation of a reduction in corn prices, the seller can make a decision to sell futures contracts (a short position) matching the quantity of corn she is expecting to sell later in the cash market. Should the price of corn fall significantly, the farmer’s short position in the futures market will call for delivery of her corn at the price at which she sold her corn futures. If the farmer decides to offset her short position prior to the delivery date, then the potential loss in revenue due to the fall in physical corn prices may be offset by the profit accumulated in the short futures position.

A hedge is a type of investment aimed at mitigating the price risk of an underlying asset. The participants—buyers and sellers—who have a commercial interest in commodities and hedge against price risk in the futures markets are called hedgers.

 

This weekly newsletter is also available as an email-based subscription.  If you would like to subscribe to our Free Weekly Newsletter (or any of our other subscription services), click here.