Nasma Freight Service, Qatar
What is a freight derivative?
A freight derivative is a financial contract between two parties, which sets an
agreed future price for carrying commodities at sea. The contract does not involve
any actual freight or any actual ships. It is purely a financial agreement - much
like that found in other commodity futures markets. At Imarex you can trade Freight
Futures, Freight Options and OTC Freight Forwards (FFAs)
Are freight derivatives similar to financial derivatives?
Shipping markets are large commodity markets and all characteristics for financial
derivatives are present. Tanker and Dry bulk chartering both have a significant
underlying market size. Both markets experience very high volatility in spot and
long term prices. Exceptionally high volatility in the price of freight, means that
in the physical underlying markets - which are the world shipping markets, natural
buyers (refiners, importers, traders etc) have to take into account a high risk
of price movements in freight when calculating the cost of transport. At Imarex,
Principals (those trading directly for their own account) trade freight derivatives
electronically on screen in real time, or via an Imarex Exchange Broker. All principals
trade anonymously, and with the security of "Straight through Clearing".
What is an FFA?
An FFA is a forward freight agreement. It allows ship owners, charterers as well
as speculators to buy and sell the price of freight for future dates.