Commodity Derivatives Risk Management

By Hilary Till, Solich Scholar, J.P. Morgan Center for Commodities, University of Colorado Denver Business School

This digest article discusses how risk management in commodity futures trading takes two different forms, depending on whether trading is done for a commercial or a purely speculative enterprise. The paper discusses that for commercial enterprises, the most important aspects of risk management are in (a) adhering to regulatory rules and laws, and in (b) establishing strict operational policies and procedures over every facet of risk-taking activity. In contrast, for a purely speculative participant, the emphasis is almost entirely on market risk-management.