Specify a Market Commodity

Security Note: You need the Allow the user to maintain markets configuration security right in the Marketing user group security rights group for this activity.

Activity Steps

  1. Open the Market/Commodity Editor.
  2. Select the Markets tab.
  3. Select a market in the Markets field group.
  4. Select the Market Commodities tab.
  5. Perform one of the following steps:
    1. To create a market commodity to be used with a physical commodity, right-click in the table and select New Market Commodity from the menu.
    2. To create a market commodity to be used with a currency commodity, right-click in the table and select New FX Market Commodity from the menu.
  6. Complete the following fields.
    • Name
    • Commodity—Select from the commodities defined in the Market/Commodity Editor.
    • Market Contract Quantity—Quantity of the commodity traded in standard contracts on the market, in the nominated unit of measure. Contracts for the same commodity in different marketplaces can have different quantities and unit of measure; for example, 25,000 lb for COMEX copper cathodes and 25 t for LME copper cathodes.
    • Contract UOM—For the different commodity types:
      • Physical—Select from the Mass units defined in the Unit Conversion Editor.
      • Currency—The Source Currency of the currency commodity.
    • Contract Margin—Margin requirement established by the exchange clearing house, quoted in the nominated Default Currency. If the margin requirement is not defined (that is, blank, as opposed to a zero value), it is understood that no margin requirement applies. As a result of trading in commodity markets, a company can incur losses associated with the overall position and price changes. To prevent a situation where a company would default payment of trading losses, clearing houses or counter-parties establish a margin requirement, that is, a cash, or equivalent, posted as guarantee of fulfilment of a futures contract. Note that this is not a down-payment. If the net exposure of a trader’s positions on any given date exceeds the Contract Margin for the market commodity, the trader must update its account balance to the amount of the exposure. Commodity markets (for example, LME, COMEX) have regulations on how much risk is admissible on positions. The value of positions that have not yet reached maturity is reassessed periodically (using the mark-to-market report). If the overall position of a given party exceeds an acceptable margin, the party must pay the amount as a provision for later payment. This prevents situations where a party is unable to fulfil a loss when positions reach maturity, as the amount would have been catered for earlier in smaller payments.
    • Default Currency—For the different commodity types:
      • Physical—Select from the currencies defined in the Currency/Exchange Editor.
      • Currency—The Destination Currency of the currency commodity.
    • Default Series—For a physical commodity, the price series used to calculate the commodity price in the marketplace. Select from the price series defined in the Pricing Editor that have a matching Material Type, Product or Analyte Definition defined for the commodity. For a foreign exchange (FX) commodity, the exchange rate series used to calculate the commodity price in the marketplace. Select from the exchange rate sources defined in the Currency/Exchange Editor.
    • Contract Type—Select from:
      • Futures
      • Options—Not applicable to FX market commodities.
      • Spread
      • Swaps
    • Default Transaction Type—Select from Buy and Sell.
    • Default Action Classification—Select from the Hedge Action Classification list items defined in the List Editor. If set to As per District, the default action classification is as specified for each District.
    • Maturity Date Scope—Select from:
      • Day and Month—The quotation period for prices based on the average of a price series will be from the first day of the month up to the selected maturity date.
      • Month Only—The quotation period for prices based on the average of a price series will be the entire month of the selected maturity date.
    • Default Broker—Select from the organisations and companies defined on the Organisations panel of the Solution Explorer and that have the Organisation Role of Brokers.
    • Purchase Maturity Month Offset—Number of months offset for purchase contracts. If the quotation period (QP) is not present and the hedge is taken directly against the despatch order, the QP is estimated to be the planned despatch date plus the purchase maturity month offset. This default offset only affects hedge positions with allocated despatch orders, not quotas.
    • Sales Maturity Month Offset—Number of months offset for sales contracts. If the QP is not present and the hedge is taken directly against the despatch order, the QP is estimated to be the planned despatch date plus the sales maturity month offset. This default offset only affects hedge positions with allocated despatch orders, not quotas.
    • Interest Rate Series—Interest rate series used in:
      • Calculating the net present value (NPV) of hedge position settlement profit or loss (for all contract types)
      • Estimating the current price of options hedge positions created for the market commodity, if the contract type of the market commodity is Options

      Select from the interest rate series defined in the Interest Rate Editor. For multi-maturity interest rate series, the whole series is selected, rather than rates for a single maturity period.

  7. If the Contract Type is Options, complete the following fields.
    • Default Option Type—Select from Call and Put.
    • Default Settlement Method—Select from the settlement methods defined on the Settlement Methods tab.
    • Volatility Curve—Used in estimating the current price of options contracts created for the market commodity. Select from the volatility curves defined on the Volatility Curves screen that have a matching Market and Commodity as that defined for the market commodity.
    • Related Futures Market Commodity—Market commodity for the related futures contract created by MineMarket when an options contract is executed. The selected market commodity determines the market commodity and transaction type of the related futures contract. Other details, such as the price series and broker, are inherited from the options contract. Select from market commodities with a Contract Type of Futures.
  8. Click Save.