FIS Ltd provides a trading facility to hedge and trade fertilizer derivative
cash settled swaps. Fertilizer derivatives are Cash Settled Swaps Agreements settled against the Fertilizer Index.
Cash settled swaps allow a buyer or seller to fix a price in the forward market. An agreement is made between a buyer and a seller today, to pay the difference between a price agreed today and the
future price of a specific
Fertilizer Index at an agreed point of time.
They are Principal to Principal agreements which can be used by producers, consumers and traders to “lock in” a forward price and hedge against adverse price movements of the market.
For traders it can allow a profit margin to be protected. For example when a trader secures an award it will have a built-in profit margin based on cost of the product at source. However, due to volatility in the market when the trader seeks to cover the physical product the price may be higher than anticipated, eroding profit. If the trader has secured a more favourable price in the forward market with a cash settled swap, when the trader covers in the physical market, any adverse movement in the physical price can be offset against the variance with the cash settled swap position. Similarly, producers can lock in forward prices using cash settled swaps and it is a paper transaction only, so no capital outlay on raw materials etc. is required.
FIS is fully regulated by the
FSA in the UK and
MAS in Singapore. The
Fertilizer Index for each product is calculated from price data provided by
FMB, Fertecon and Fertilizer Week and represents physical spot prices in the market.
