Hi everybody, I need help on commodity futures please. I always thought that someone who’s long an asset (meaning he needs to buy it in the future), would go long a forward or futures to lock in the price at maturity. I don’t understand schweser book 4 p 167 where they say that when you expect to receive the commodity in the future, we say you are long the commodity and you will hedge the value of the expected commodity by selling the corresponding futures contrats. Why does it work that way while for eg someone who needs to buy euros in the future would go long a euro fwd? Although it might be that I’m stupid and need to sit again level 1, I don’t understant what schweser says! Please help Thanks
If you are currently long the commodity, you own it now. Long commodity is not the same as long the futures.
So when they say that one expects to receive the commo in the future, he’s actually short. And to hedge he’ll go short the futures. Is that correct? What would you do if you are an investor who plans to buy oil in the future? To lock in the future rate, I would go long a future.
If you expect to receive something in the future, you expect to receive it in the future, and thus do not have a current position. You are neither long nor short the asset at that point. You WILL BE long once you receive it. If you know that you will need to sell it at that point, then taking a short position in a futures contract will allow you to hedge the price at which you will need to sell it.
Thank you!