Recovering hedging losses in commodities contracts
Producers, sellers and buyers of commodities all live with price
risk, where prices fluctuate between the time of sale and the time
of delivery. Price fluctuation can be particularly dramatic when
there are unforeseen market or world events.
To guard against these risks, traders regularly hedge their
positions. Where a counterparty defaults, how does the law treat
hedging losses and which losses are legally recoverable? Firstly,
let us try to simply define hedging.
What is hedging?
As we have said, the principle of hedging is to protect oneself
against market price fluctuations. One might limit potential
profits but also losses.
