To:

Investors who have been or are preparing to participate in position-based commodity business. Note: This article applies to hedging activity-based commodities company, not all companies use hedging activities.

As a conclusion commitment:

(1) Hedging is a financial institutions and non-zero and the game users (ie, management, and therefore, shareholders) who is the beneficiary

(2) Commodities hedge to reduce their mouths, allowing investors to buy stocks.

(3) Investors should be the ETF is to track the goods or to see the company's products are very cautious approach to hedge price fluctuations of their improvement.

Zero-sum game

In the case of zero, sum up the game does not create wealth, but from one party to another. In theory, there is a greater expertise in the area of coverage of party members are likely to end net income, therefore, by default, to the other side's losses. It comes down to which party they think best suited to predict each other's products from financial institutions, management or analysts, the future trend of the armed forces. On average, financial institutions, companies, so that the benefits of hedging activities (who may have greater vision and analysis tools), therefore, the value is transferred from shareholders to the bank.

Meeting investor needs?

It is very easy to answer why some companies are looking for commodity-based hedge agreement, usually to ensure a stable and sustainable cash flow levels, although the impact of commodity price fluctuations. In a typical corporate investors are likely to sacrifice the stability of the cash flow of valuable things, but this is not a real company's shareholders based on the commodity. Hedging in the commodity business for the same reason the practice of looting investors who first invested – exposure to gold, oil, coal, or other commodity price fluctuations. The Administration has led to commodity investments to increase the application to establish an investment company investor choice. Stable cash flow, is likely to major investors in this case, what the Government does not meet the investors lack of demand, as investors in other parts of the investment portfolio and stable cash flow through the diversification of other sectors to hold.

Where to from here

Investors seeking investment, reflected in the exposure to be considered in the carriage of goods directly to ETF tracking the price movements of goods. In addition, if you still prefer to be through its participation in the status of listed companies in the industry to continue in their coverage and impact of future income-generating activities in the eye contact will be reduced by the estimated revenue for the company leveraged commodity price fluctuations.

Thank you,

Simon Giannakis

Tags: Avoid, Commodity, commodity investments, Companies, company, financial institutions management, Hedge, Simon GIANNAKIS