| | |cover| way | way |
| | |-ing | | |
------------+-----------+---------------+-----+-------+-----------+---------
You buy | When you | | |Profit |Actual cost|
actual sugar| sell your |It has declined| | |less profit|
at 6.00 | sugar (or |to 4.00 |4.00 |2.00 |6-2=4 |
| when it is| | | | |
| delivered)| | | | |
| you buy | | | | |You get
| the same | | | | |your
| amount of | | | | |sugar
| futures at| | | | |at the
| the market| | | | |market
| price, | | | | |price
| whether | | | | |at the
| higher or | | | | |time
| lower. | | | | |when you
| | | | | |sell it
| | | | | |(or when
At the same | | | | |Actual cost|your
time you | |It has advanced| |Loss |plus loss |delivery
hedge by | |to 8.00 |8.00 |2.00 |6+2=8 |is made.)
selling the | | | | | |
same amount | | | |No | |
of futures | |It stands at | |profit,|Actual |
at 6.00 | |6.00 |6.00 |no loss|cost |
------------+-----------+---------------+-----+-------+-----------+---------
Naturally the greater the amount of sugar any one concern may have in
transit the greater the need for protection. We call this kind of
transaction particularly to the attention of buyers having branch
houses who find themselves obliged to make relatively large purchases
to supply their trade in the face of a market in which they have no
confidence.
These disadvantages at which out-of-town buyers are sometimes placed
might be overcome by using the Exchange. On the other hand, when
refiners are badly behind on deliveries, e
|