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For a commodity using ratios:
| • | Enter the quantity fixed for each partial fixing. |
| • | Enter again a (futures based) price to which the contractually agreed ratio is applied. |
(This compares to the basis plus premium in contracts using differentials).
| • | Enter the number of lots. The default is calculated as (Quantity / Lotsize) * Ratio where Ratio = Market Ratio + Ratio correction (as specified on the contract), rounded to 0 decimals. |
Note: The contract ratio is used for price calculation. The number of lots is used to create a hedge requirement, using the market ratio.
A hedge requirement with purpose Fixing at contract creation will no longer be generated because of the unpredictable nature of the quantities. For manual fixing of ratio based contracts, a hedge requirement no longer updates from Fixing to Hedging. For these contracts, only a hedge requirement with purpose Hedging will be created. You can enter the number of lots to create on the Risk tab.
When there are multiple partial pricings, it is possible that the market ratio has changed. This affects the calculation:
| • | Enter the quantity fixed and the price agreed for partial pricing. |
| • | Calculate the number of lots for the total quantity that has now been priced. |
| • | Deduct the number of lots already traded for hedging to determine how many lots need to be bought or sold. |
Example:
Three pricings and extreme ratio changes on a sales contract of 300 MT with a lot size of 10 MT exact (this is the lot size in Cocoa) and a contract ratio of 1.5.
| • | First pricing is for 100 MT at a market ratio of 2
=> 2 * (100/10) = Buy 20 lots for hedging. |
| • | Second pricing is for 100 MT at a market ratio of 3
=> 3 * (200/10) - 20 = 60 - 20 = Buy an additional 40 lots for hedging. |
| • | Result : 200 MT / 20 lots is hedged with in total 60 lots, conforming to the market ratio. |
| • | Third pricing is for 100 MT at a market ratio of 1.5
=> 1.5 * (300/10) - 60 lots = 45 - 60 = Buy -15 lots = Sell 15 lots. |
| • | So sell 15 lots instead of buying anything. |
| • | If the prices at each step were 200, 400 and 600 then the average price is calculated using the weight fixed per pricing (lots are only used for hedging):
Add (Contract ratio * fixed weight * price) per price fixing, then divide by total weight.
{(1.5*100*200) + (1.5*100*400) + (1.5*100*600)} / 300
= (30 000 + 60 000 + 90 000) / 300 = 600 |
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