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Exchange as a tool for hedging risks: why do we need unusual futures



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We write a lot about what assets are available to stock investors today, including in Russia. We also talked about derivatives - futures and options. In those materials, it was about classic contracts, but in real life there are also very unusual ones. Today we list a few of them.

Weather Futures


The Chicago Mercantile Exchange CME (Chicago Mercantile Exchange), contrary to its name, sells far not only goods and related contracts. For example, weather futures contracts are concluded on this site. Traders place bets on rainfall in various regions.

At first glance, it looks like a clean casino, but in fact, such futures can be useful for energy and transport companies, postal operators and even farmers who want to hedge their risks in case of heavy rainfall or natural disasters such as hurricanes.

The CME even has a special “Hurricane Index” that reflects the amount of potential damage to potential hurricanes. Calculated from based on public data from the US National Meteorological Service.

Hurricane Index-based futures for each hurricane that is named are also traded on the exchange. Such futures are used by business owners, insurers, as well as private homeowners.

Dairy Futures


The goods include not only oil or grain, but also, for example, dairy products. So on the same exchange in Chicago, traders can enter into futures contracts for cheese, milk (there are different types of products suitable for making cheese, butter, etc.), skimmed milk powder and butter.

For example, in the case of oil, the size of the contract is 20 thousand pounds (9000 kg). Typically, between 50 and 300 transactions with such futures per day are made.

Food futures


As you understand, food is a very popular commodity. In addition to grain, corn and soybeans futures, which many could hear about, there are also contracts for oatmeal. At CME, one such contract has a volume of approximately 5,000 bushels (approximately 86 metric tons), and approximately 100 to 2,000 transactions per day are completed.

If there are futures for oatmeal and grain, then the existence of contracts in fig. Here the market is even more active - the minimum number of transactions per day does not fall below 200, and the maximum is up to 2000 transactions. One contract includes approximately 91 metric tons of rice.

And perhaps the most amazing futures from the food segment is the contract for orange juice. This is one of the most volatile segments, where the price gaps in transactions during the day can be very large. Traders do not sell liquid juice, but concentrated frozen juice. They are traded on the ICE (Intercontinental Exchange, ICE). Each contract includes 15,000 pounds (~ 6800 kg) of frozen juice. On the most active trading days, up to 20,000 transactions with such contracts are completed.

Uranium Futures


The energy sector is one of the most active in terms of created and traded futures. In addition to the usual futures for electricity or energy, there are completely unobvious.

One of them is a futures contract for radioactive uranium traded on the same CME. This contract has its own UX ticker, it includes 250 pounds of uranium (~ 113 kg). It is difficult to talk about the existence of at least any active market for this contract - usually there are applications for the purchase of contracts on the exchange, but they are rarely available for sale and it is not entirely clear who is involved in such transactions.

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