Commodity transactions provide hedging for clients who want to reduce the risks posed by the rapidly changing prices of raw materials. Our products include energy carriers (crude oil, refined products, natural gas), precious metals (gold, aluminium, copper), as well as agricultural products (wheat, corn, rapeseed).
The price of a commodity buying or selling due at a future date or period may be fixed by means of a commodity swap.
A commodity swap is an agreement under which the two parties exchange their cash flows over a predetermined period of time. A party exchanges a fixed-rate liability or claim for one expressed in a variable price depending on the evolution of the exchange rate for the specified commodity product.
Depending on the basic product, two types of swaps are distinguished; in
both cases, we conclude a financially settled product with our clients.
European type swap (bullet)
The clearing price is a predetermined reference price quoted at a future
date, similar to a stock exchange futures transaction. These types of
transactions are normally physically delivered and therefore the position must
be closed before maturity and accounted for financially (net) or "rolled
over" to a more distant date.
Asian (average price) swap
The clearing price is the average price of a future period, typically a given month. Settlement of the transaction is carried out after the relevant period.
Example transaction
Your commodity market risk arises from fluctuations in the rapeseed exchange rate. To mitigate the risk, you want to fix the selling price in advance.
You sell rapeseed from time to time, the total annual production is 5000 mt (metric tons). The physical selling of the basic product is recorded in Euronext (Matif) futures quotes. When selling a product, current futures quotes determine the strike price.
For you, the fall in the listing of the product – in our example, the February rapeseed – is the risk that you need to guard against.
Transaction parameters | |
---|---|
Buyer | OTP Bank Plc. |
Seller | Client |
Basic product type | Euronext (Matif) Rapeseed |
Quantity of basic product | 500 mt (10 lot) |
The future price of the product at the time of closing the deal | 380 EUR/mt |
Expiry month | 2020. February |
The final date of closing a futures contract | 28 January 2020 |
Settlement method (net) | financially (net) |
- Transaction parametersTransaction parameters
- BuyerOTP Bank Plc.
- SellerClient
- Basic product typeEuronext (Matif) Rapeseed
- Quantity of basic product500 mt (10 lot)
- The future price of the product at the time of closing the deal380 EUR/mt
- Expiry month2020. February
- The final date of closing a futures contract28 January 2020
- Settlement method (net)financially (net)
If you sell the commodity at a fixed price in the swap transaction, in the event of a fall in the price of rapeseed, you may have an exchange rate gain at the closing of the transaction, but at the same time, in the event of an increase in the market price of rapeseed, you may record a financial loss at the closing of the transaction.
- In the event that the rapeseed price falls, you win on the hedge (in the swap, you close the transaction at a lower rate), while you can also physically sell the product at a lower rate.
- In the event that the rapeseed price rises, you will incur a loss on the hedge (in the swap, you close the transaction at a higher rate), so you can also physically sell the product at a higher rate.
- The “physical selling leg” of rapeseed and the “commodity swap derivative leg” together result in a sell price of 380.
Benefits
- By entering into a transaction, the price of the variable (index-bound) base product can be exchanged for a fixed price.
- You can choose from a wide range of products for both agricultural products and energy carriers.
Risks
- It is recommended to close the hedge transaction only when the physical transaction is terminated (physical buying or selling of the base product takes place).
- The degree of exchange rate movements (volatility) is expected to be higher than, for example, in the case of foreign exchange transactions.
- Financial gains/losses are incurred in currencies other than forints
(EUR, USD).
Experts
If you have any questions, feel free to contact us.
János Imrei
Head of Department
Edit Orsolya Kovács-Gyimóti
Deputy Head of Department
Borbála André
Sales
Nóra Gordos
Sales
István Fodor
Sales
Péter Huck
Sales
OTP Trader
Flóra Zsófia Margaritisz
Sales
OTP Trader
Nóra Simon
Sales
OTP Trader
Useful documents
These documents in English language to the person concerned
shall be for information purposes only. OTP Bank Plc shall fulfil its obligations imposed by the
legal regulations or requirement of supervisory authority by the documents in
Hungarian language.
In the
event of any discrepancy between the English language and Hungarian language
versions, the Hungarian language version shall prevail.
Information on the suspension of the market making obligation (available only in Hungarian)
Cross-Currency Interest rate swap
Dual currency structured investment
Forward deal in precious metals (gold and silver) transaction
Long-Term Investment Account T+3 FORWARD
Stock exchange spot transaction
Notice on the uEMIR Notice se of LEI CODES
Disclosure of information pursuant to Article 11 (11) of the EMIR Regulation
Information for Clients on MiFID
Global Markets ex-ante cost transparency information (available only in Hungarian)
Systematic internaliser - quotes
Notice on the use of LEI CODES
Direct and indirect clearing services in respect of certain derivative transactions announcement
Notice - on the impacts of the pandemic emergency on the money and capital markets
Terms and conditions
Announcements