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Benefits and risks

Futures and options contracts provide traders and the market as a whole with a number of important benefits. Strategies involving derivatives can broadly be described as either hedging strategies or speculative strategies. The benefits and risks of a derivatives strategy may differ depending on your personal objectives. Benefits of exchange traded derivatives markets include, but may not be limited to:

Hedging benefits

  • Transparent price discovery:
    • An exchange traded market is a public forum
    • Real-time market data is available on a subscription basis through vendors
    • Prices reported via this website are on a 20 minute delay
    • A summary of the ASX grain market is also available in the daily activity report
  • Anonymous marketplace:
    • You can participate in the futures market and delivery process without the need to disclose counterparty identities
  • Manage price risk:
    • Manage your risk exposure via offsetting derivatives positions
    • Hedge against commodity price risk and take greater control over the price you either receive or pay for the commodity being produced or consumed
  • Manage counterparty credit risk:
    • ASX agricultural derivatives are centrally cleared by ASX Clear (Futures)
    • The clearing house, manages the financial integrity of the market by way of managing the respective clearing participants within the market
    • The financial integrity of the market is managed through the daily settlement process and collection of margins as well as monitoring market volatility
  • Manage basis risk:
    • There is a strong correlation between ASX and underlying markets for Australian agricultural commodities
    • As such, the basis risk, the risk that the hedge does not perform in the same fashion as the underlying commodity being hedged, is reduced
  • Manage production/consumption risk:
    • ASX grain options provide growers with the flexibility to hedge price risk without having a production obligation
    • ASX grain options provide consumers with the flexibility to apply simple options strategies that do not create a consumption obligation
  • Manage foreign exchange exposure:
    • ASX grain contracts are priced in Australian dollar terms.
    • For Australian users; there is reduced foreign exchange risk.

Investment benefits

  • Generate alpha:
    • If you are an investor seeking direct investment in alternative asset classes, futures and options over commodities such as wheat and barley may provide you with opportunities to improve returns or diversify your investment portfolio.
  • Trade relative value spreads – time, quality, geography:
    • ASX agricultural derivatives enable traders to trade Australian origin grain against global grain derivatives
    • Trade your view on price trends
    • CFTC approved.

Risks

Futures and options contracts are not suitable for all investors. Before trading you should carefully assess your experience, investment objectives, financial resources and all other relevant considerations as well as consult your licensed financial services adviser. In particular, you should understand the implications of leverage, additional margin calls and unlimited losses on your investments.