Reading Assignment: Lesson 7

Reading Assignment:

Seng - Chapter 6

Errera & Brown - Chapter 5
This text is available to registered students via the Penn State Library.

Key Points of Emphasis

• Hedging reduces both physical and financial risk.
• Hedging is performed by commercial entities; it is not "trading."
• Hedgers have two positions, one in financial and one in physical.
• Hedgers must take an opposite position in the financial market to the one they have in the physical market.
• Commodity producers are "long" the physicals and must sell the financials.
• Commodity consumers are "short" the physicals and must buy the financials.
• Multi-month hedges or "strips" can be obtained.