Grain derivatives

For grain producers and consumers

• Manage price risk: protect your business against price fluctuations and take greater control of the prices you pay or receive
• Manage credit risk: trade on a market that is centrally cleared by ASX Clear (Futures), with daily margin collection to help ensure participants meet their obligations
• Manage production and consumption risk: options help you protect against price fluctuations without the obligation to produce or consume physical grains
• Manage currency risk: ASX Grains contracts are priced in Australian dollars, reducing foreign exchange risks.

For speculators and traders

• Generate alpha: ASX Grains futures and options offer cost-effective exposure to an alternative asset class, creating the potential for improved returns or diversification.
• Trade relative value spreads: ASX Grains contracts provide opportunities to create time, quality or geographical spreads, so you can trade on your view of price trends or the relative performance of Australian and global derivatives.
• Manage basis risk: there is a strong correlation between ASX and the underlying markets for Australian agricultural commodities, reducing basis risk and making ASX Grains an efficient hedging and trading tool.

• Leveraged losses: when you trade futures, the percentage return on your initial investment may be far greater than the movement in the underlying index, either positive or negative. Unlike options, where the financial cost to the buyer may be limited to the cost of the premium, both the buyer and the seller of a futures contract face potentially unlimited losses. 
• Hedging imperfections: using ASX Grains futures and options to protect against price fluctuations involves basis risk – the risk that movements in the value of your derivatives do not accurately track the underlying grains market. You may also face additional risks if the number of lots you choose to hedge does not match the quantity of grain you produce or consume.
• Margin calls: if you write options or trade futures, you may be required to provide extra security to ensure you can meet your obligations. If you can’t do so, your broker may close out your position and you will be liable for any losses.
• Complexity: option and futures trading strategies can be complex. Before trading, you should ensure you fully understand the risks and, if necessary, consult a qualified adviser.