Search the LME Home Physical services Physical market benefits Hedging Physical market benefits Hedging QUICK ACCESS Price discovery Price convergence Prompt date structure Reference pricing The LME offers those at all stages of the metals supply chain the opportunity to hedge their price risk and gain protection from adverse price movements. Hedging is the process of offsetting the risk of price movements in the physical market by locking in a price for the same commodity in the futures market. There are two main motivations for a company to hedge: To lock in a future price which is attractive, relative to an organisation’s costs To secure a price fixed against an external contract When hedging, an organisation starts with price risk exposure from its physical operations, and will buy or sell a futures contract to offset that price exposure in the futures market. An organisation can decide on the amount of risk it is prepared to accept. It may wish to eliminate price risk entirely. To be successful, a hedging programme must be devised in conjunction with a sale or purchase plan, and all pricing must be basis the LME Official Settlement Price in order to achieve the most effective hedge and to meet the international accounting standards. Speculation Hedging is the opposite of speculation as its primary purpose is to offset risk. Speculators, however, come to the futures market with no initial risk. They assume risk by taking on futures positions, which in turn provides market liquidity. Hedgers reduce or eliminate the chance of future losses or profits, while speculators risk losses in order to make profits. Contact us For more information, please get in touch. Contact us Hedging example Producer benefits Merchant benefits Consumer benefits Scrap dealer benefits STAY UP TO DATE Register with LME.com Receive full access to all our price data and gain access to our monthly LME newsletter, packed with market tips and insights from our on-staff specialists. Register now Metals Trading Clearing Market data Physical services About About the LME Committees Governance Corporate Business continuity FAQs Regulation LME Rulebook (Download) LME Clear Rulebook (Download) Guide to market structure (Download) Market regulation Benchmark regulation Pre-trade transparency Brexit Rules Arbitration Responsibility Responsible sourcing Sustainability Conduct Diversity and inclusion Charity Corporate disclosure CONTACT US London +44 (0)207113 8888 10 Finsbury Square London EC2A 1AJ Singapore +65 6535 5035 9 Battery Road #07-02 MYP Centre Raffles Place Singapore 049910 Register Log in Legal Privacy statement Cookie policy Modern slavery statement Website T&C's Email disclaimer Cyber security awareness © 2021 The London Metal Exchange - an HKEX Company. All rights reserved.