Forward freight agreements (FFAs)

A forward freight agreement is a cash-settled derivative contract on a published freight index, under which two parties agree a freight level for a future period and settle the difference in cash at expiry against the arithmetic average of that index over the period. No ship is chartered, no cargo moves and nothing is delivered: the contract references the index, and the index is produced by a regulated benchmark administrator from a panel of shipbroker assessments.

That single sentence contains the two things the instrument depends on. The settlement reference has to be a defined, published and governed number, which is why the regulatory status of the Baltic Exchange indices is a precondition of the derivative rather than a footnote. And the contract has to specify precisely which days are averaged, because that is what turns a market view into a payment.

What the contract actually is, in three forms

The same economics exist in three legal wrappers, and the differences matter to credit rather than to price.

A bilateral FFA runs principal to principal on the FFABA standard terms, usually arranged by a broker who circulates a recap. Each party carries the other’s credit for the life of the trade, and there is no margin unless the parties negotiate a credit support annex.

A cleared FFA is the same trade registered after execution and novated to a clearing house, which becomes buyer to the seller and seller to the buyer. The Singapore Exchange specification names this instrument a swap contract, defined as the forward freight agreement accepted by the clearing house for clearing, and treats it as position-equivalent to one futures contract.

An exchange-traded future is traded on the venue’s order book under its contract specification and trading rules. The Singapore Exchange specification states expressly that where its rules and the specification conflict, the rules prevail.

The clean way to hold the distinction: the bilateral FFA and the cleared FFA have identical cash flows and different credit; the cleared FFA and the exchange future have identical credit and different rulebooks.

FFABA 2007 and the ISDA overlay

The current bilateral form is FFABA 2007, published under the Baltic Exchange by the Forward Freight Agreement Brokers Association, superseding FFABA 2005. No later form has been published, and the English Commercial Court described the contracts before it in the Britannia Bulk litigation as being on the market-standard FFABA 2007 Terms.

Its defining feature is the incorporation of the ISDA Master Agreement 1992, Multicurrency Cross Border, without its Schedule. A freight derivative is a financial contract, and the ISDA Master supplies the netting, events of default, automatic early termination and close-out valuation machinery that no charterparty form contains.

The consequence is the most important legal fact in the topic. An FFA close-out dispute is not argued as a shipping dispute. It is argued as an ISDA dispute, on the construction of Loss and of the Section 2(a)(iii) condition precedent, and that is exactly what happened when the market last broke.

Contract specifications by venue

Four venues list freight derivatives, and their specifications differ in ways that decide how a hedge is sized.

Singapore Exchange lists the dry bulk suite. The Baltic Capesize Voyage C5 route future has a contract size of 1,000 metric tonnes, is quoted in US dollars per tonne with a minimum fluctuation of USD 0.01, and settles on the arithmetic average of every C5 daily assessment in the expiring month, rounded to four decimal places. The Panamax P2A timecharter future has a trading unit of one day, is quoted in USD per day with a minimum fluctuation of USD 1, and settles on the average of the last seven days of P2A assessments, rounded to one decimal place. Options on the Capesize timecharter future are quoted in hundredths of a dollar per lot with strikes in multiples of USD 1 per day, and carry no position limits, only position accountability.

EEX, cleared by European Commodity Clearing, lists timecharter, trip timecharter and voyage families. Timecharter and trip timecharter contracts are sized in days with a USD 1 tick, listed 84 and 36 months out respectively; voyage contracts are sized at 1,000 tonnes with a USD 0.01 tick and listed 36 months out. All three settle on the arithmetic average of the daily Baltic assessments across the expiry month. Options are European style with equity-style margining, the premium paid up front, expiring at 1845 Central European time on the last trade registration day, with in-the-money options exercised automatically.

CME Group lists the dry timecharter averages on NYMEX. The Capesize contract unit is one day of vessel timecharter, priced in US dollars per day with a USD 1 minimum fluctuation, and the floating price for each contract month is the arithmetic average of the Capesize Timecharter Average published daily by the Baltic Exchange from the first business day of the month through the last trading day inclusive. Panamax, Supramax and Handysize contracts share the architecture.

ICE Futures Europe is the venue for wet freight, which is what most descriptions of the market omit. The TD3C FFA Middle East Gulf to China (Baltic) Future carries contract symbol TDL, a contract size of 1,000 metric tonnes tradable in any multiple of 1,000, a minimum price fluctuation of USD 0.0001 per tonne, up to 60 consecutive months listed, and a final payment date two clearing house business days after the last trading day. ICE also lists TC2, TC5, TC6, TC14, TD20, a TC2 to TC14 triangulation contract, average price options, balance-of-month contracts and daily minis, plus the Baltic LPG routes.

Nasdaq is not a freight venue. EEX Group agreed to acquire the Nasdaq Futures commodities business on 12 November 2019, and 143,784 lots of freight open interest, about 90 percent of the portfolio, migrated to European Commodity Clearing. Nasdaq Oslo’s current European commodity set is power, certificates, gas, allowances and seafood.

Settlement: Asian averaging, and which days count

Freight derivatives settle Asian style, on an average rather than on a closing price, because a freight index is an assessment of a market rather than a traded price and a single day carries too much assessment noise to bear a settlement.

The averaging window is contract-specific and not market-wide. Three windows appear on published specifications: the whole month on every publication day, which is the default at Singapore Exchange for C5, at EEX across all three families, at CME and at ICE for TD3C; the last seven days on the Singapore Exchange Panamax P2A and P3A single-route timecharter futures; and balance of month on the ICE Balmo contracts. A description that attaches the seven-day window to voyage contracts has it backwards.

The counting set is the index’s own publication days, not calendar days and not exchange days. The Singapore Exchange defines a business day for the C5 contract as a publication day of that route, and ICE defines business days as publication days for the relevant index. A Baltic holiday removes a day from the average; it does not create a gap requiring a substitute value.

Rounding differs by contract: four decimal places on the Singapore Exchange C5 contract in USD per tonne, one decimal place on P2A in USD per day. And the December expiry differs by venue: EEX, CME and ICE all move it to 24 December, rolling back to the preceding business day where that is not one, while the Singapore Exchange specifications carry no December carve-out and state simply the last business day of the contract month.

Where the index is not published at all on a settlement day, every specification vests a discretion rather than prescribing a formula. The Singapore Exchange provides that where the prescribed final settlement price is not available, the exchange and the clearing house may decide it be determined by an alternate means, and that determination is final.

Units, and the Worldscale conversion that is usually misdescribed

No listed contract settles in Worldscale points. The index is assessed in points; the contract converts them. The ICE floating price for a Baltic-based dirty route is the arithmetic average of the daily assessed Worldscale prices for the route, multiplied by the prevailing Worldscale flat rate for the delivery period as published by the Worldscale Association, divided by 100, for each pricing date in the expiry month.

Two consequences follow and both are practical. A tanker FFA does not settle in dollars per day, so a hedge sized in ship-days against a contract settling in tonnes is mis-sized. And the reference is not always a Baltic assessment: the ICE TC5 contract settles off the Platts daily assessment for the 55,000 tonne Arabian Gulf to Japan route, taken from Clean Tankerwire under East of Suez LRs, multiplied by the TC5 flat rate.

The derived-value architecture

Four dry series are published as a fixed constant subtracted from an assessed basket rather than assessed in their own right: C5TC(180) equals C5TC(182) minus 3,503; P4TC equals P5TC minus 1,336; S10TC equals S11TC minus 2,034; HS6TC equals HS7TC minus 1,966, all in USD per day.

This is the single fact a practitioner most needs and the one most often absent from descriptions of the market. A trader short C5TC(180) is short C5TC(182) offset by a fixed number. The two positions have identical daily variance and a permanent level difference, so the spread between them cannot move and carries no information, and a hedge constructed across the pair is not a spread trade at all.

It also explains what happened to the Panamax contract. EEX and European Commodity Clearing transferred all open interest in the Baltic Panamax 4TC future into the 5TC contract on 16 January 2026, at the published differential of USD 1,336 set in April 2021, already reflected in the 15 January settlement prices, with fees waived and no additional margin required. The Baltic ceased publishing P4TC with a final publication day of 30 January 2026. P4TC options were not transferred and the last expired on 24 December 2025. The composition of the current baskets is set out at the Baltic Dry Index and freight indices , with the individual families at the Baltic Capesize Index , the Baltic Panamax Index , the Baltic Supramax Index and the Baltic Handysize Index .

Capesize is the next transition. The Baltic adopted the 182,000 dwt standard vessel on 2 January 2026 and will coordinate a C5TC(180) to C5TC(182) move using the same mechanism. No date has been published, and none should be assumed.

Clearing, margin and the clearing member

Registration novates the trade to a central counterparty, which then stands on both sides. Initial margin is collected when the position is opened, against potential future exposure between a default and the close-out. Variation margin is the daily cash settlement of the mark to market: European Commodity Clearing calculates it at the end of each clearing day from the exchange settlement prices published around 1900 Central European time, deferring cash settlement to the next clearing day that is also a US dollar settlement day where necessary.

A clearing member stands between the client and the clearing house. EEX’s specification places fulfilment between clearing members and the clearing house, and makes settlement with non-clearing members and their clients the responsibility of the clearing member in charge. A shipowner without clearing membership therefore faces its clearing broker, and the broker faces the clearing house, which is a third credit profile distinct from both the bilateral and the direct-member cases.

The credit difference reduces to one line. On a bilateral FFA the exposure is the counterparty’s unpaid mark to market accumulated to settlement. On a cleared FFA it is one day of the clearing house’s variation margin cycle plus the clearing house’s own default waterfall. That is why the defaults of 2008 and 2009 were a bilateral phenomenon.

The regulatory frame, including where it does not apply

EMIR. Regulation (EU) No 648/2012 of 4 July 2012, in force 16 August 2012, governs OTC derivatives, central counterparties and trade repositories. The clearing obligation does not reach freight. The classes designated under Article 5 are certain interest rate derivatives and certain untranched index credit default swaps, and ESMA has never proposed commodity derivatives for mandatory clearing. What does apply is trade reporting under Article 9 and the risk-mitigation techniques for uncleared contracts under Article 11: timely confirmation, portfolio reconciliation and compression, dispute resolution, daily valuation and margin above the thresholds. FFAs also count toward the clearing thresholds. All of it binds EU-established counterparties only.

United Kingdom. EMIR was onshored as UK EMIR from 31 December 2020, with the Bank of England setting the clearing obligation scope and the Financial Conduct Authority supervising conduct, reporting and risk mitigation. Freight is not in scope there either. The Financial Services and Markets Act 2023 gave HM Treasury and the regulators power to replace onshored EMIR with rulebook provisions, and that programme is live with no announced completion date. The practical relevance is high, because the FFA broking market, the FFABA form and the Baltic itself are all London-based.

United States. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203 of 21 July 2010, an FFA is a swap within Commodity Exchange Act section 1a(47), and the forward contract exclusion cannot save it because that exclusion covers a nonfinancial commodity intended to be physically settled. No CFTC clearing mandate covers freight: the Commission’s determinations under section 2(h) reach interest rate swaps and index credit default swaps only. Swap data reporting under section 4r, real-time public reporting and the business conduct standards under section 4s(h) do bite where a swap dealer is a counterparty.

MiFID II. Freight derivatives sit in Annex I Section C(10) of Directive 2014/65/EU, covering derivatives relating to freight rates, and not in the tangible-commodity categories C(5) to C(7). They are commodity derivatives, by definition rather than by category: the Article 4(1)(50) definition and its parallel in the Markets in Financial Instruments Regulation reach C(10) underlyings. ESMA has applied this concretely, including wet and dry freight rate derivatives in the ancillary activity test calculations while excluding other C(10) contracts, and placing freight in the other commodities class for the market-size limb of that test. The position limit regime under Article 57 was narrowed to agricultural derivatives and to critical or significant commodity derivatives with net open interest above 300,000 lots over a one-year period, which is consistent with the Singapore Exchange’s statement that its Capesize contracts carry no position limits.

The benchmark layer. Regulation (EU) 2016/1011 of 8 June 2016 governs indices used as benchmarks in financial instruments and contracts, with the UK version retained from 31 December 2020. Baltic Exchange Information Services Ltd was authorised by the Financial Conduct Authority as a benchmark administrator in March 2020, and the Guide to Market Benchmarks records that panellists are contributors within the meaning of Article 3(1)(9), that the guide ensures compliance with the UK regime and with Title II of the EU regime, and that the oversight function’s escalation route in the event of an alleged breach runs to the FCA. The authorisation was undertaken so that institutions and traders using European clearing houses could continue using Baltic data for settlement, which is why this is the least optional part of the whole structure. The regime and its scope are set out at the EU Benchmarks Regulation and the assurance standard at the IOSCO Principles for Financial Benchmarks .

Worked example: an owner selling forward

An owner has one Capesize opening in the Pacific and expects to trade her spot through October. The forward market for October is USD 22,000 per day. All figures here are illustrative. The owner sells 31 lots, one per day of October, at USD 22,000.

If the market falls and October averages USD 16,000 per day, physical earnings on the index are 31 multiplied by 16,000, or USD 496,000, and the derivative gains (22,000 minus 16,000) multiplied by 31, or USD 186,000. Combined, USD 682,000, which is 31 multiplied by 22,000.

If the market rises and October averages USD 29,000, physical earnings are USD 899,000 and the derivative loses USD 217,000. Combined, USD 682,000 again. The owner fixed 22,000 in both directions, which is the whole point.

The cash timing is the part that catches people. In the rising case the owner posts variation margin daily through October as the curve moves up, and the USD 217,000 leaves the account before the physical voyage revenue arrives. A hedge that works economically can still break a cash flow, and the funding line has to exist before the position does.

Worked example: a charterer buying forward

A steel mill has committed to lift 170,000 tonnes of iron ore from Tubarao to Qingdao in November and is exposed to the C3 route. C3 forward is USD 24.00 per tonne, illustrative. Contract size is 1,000 tonnes per lot, so the mill buys 170 lots.

If freight rises and November C3 averages USD 28.50 per tonne, the physical freight bill is USD 4,845,000 and the derivative gains USD 765,000, netting USD 4,080,000. If freight falls to USD 21.00, the bill is USD 3,570,000 and the derivative loses USD 510,000, netting USD 4,080,000 again.

The mill has fixed a delivered-cost input months before any voyage charter is fixed. Note that C3 is a voyage route settling in USD per tonne, so no conversion is needed and the hedge maps straight onto the freight invoice. That is a cleaner instrument for a per-tonne exposure than a timecharter basket, and it is why a contract of affreightment is usually hedged on voyage routes rather than on a daily average.

Worked example: basis risk when the route does not match

A Supramax owner trades the US Gulf to East Coast South America grain run. No listed contract covers that specific trip, so the owner hedges with S11TC, the eleven-route Supramax basket, selling 30 lots for July at USD 14,500 per day. Illustrative throughout.

July S11TC averages USD 12,800, so the derivative gains (14,500 minus 12,800) multiplied by 30, or USD 51,000. But the owner’s actual trip earns USD 11,200 per day, because the Atlantic was weaker than a basket carrying Pacific and Indian Ocean routes. The shortfall against the strike is (14,500 minus 11,200) multiplied by 30, or USD 99,000. The basis loss is USD 48,000, or USD 1,600 per day, and the hedge recovered 52 percent of the shortfall rather than all of it.

Run it the other way. The index averages the same USD 12,800 and the derivative gains the same USD 51,000, but the Atlantic is strong and the trip earns USD 15,900 per day. The owner is better off by USD 42,000 on the physical and keeps the USD 51,000. Basis cuts both ways: it is a variance to be sized, not a cost to be assumed.

The four sources of basis

Each of the four is checkable against a published document rather than estimated.

Basket composition. S11TC is eleven routes weighted per the index formula and a single trip is one of them, so a basket hedge on a single-lane exposure carries the other ten routes as noise.

Standard vessel. The Baltic Supramax is a defined 63,500 dwt geared design and the Capesize a defined 182,000 dwt non-scrubber-fitted ship, neither of which is the real vessel. Age, gear, fuel curve and scrubber fitting all separate the ship from the index, which is the same adjustment a voyage estimate has to make and the reason a time charter equivalent is only comparable on a matched basis. Speed and consumption sit inside the index definition itself, which is why a ship operating on slow steaming economics diverges from the reference.

Averaging window. The contract settles on the month’s mean while the fixture is struck on one day, so a well-timed fixture in a volatile month beats its own hedge and a badly timed one loses to it.

The derived-value offset. A position in C5TC(180) against C5TC(182) is basis with a published number attached, and it is the only one of the four that can be computed exactly in advance.

Freight hedges and bunker hedges

The Baltic timecharter averages are timecharter equivalents already net of bunkers. The benchmark vessel description prescribes consumption at four speeds and the index is computed after voyage costs, so the index rises when bunker prices fall, other things equal.

The consequence is counter-intuitive and it is the mistake most often made by a desk new to the instrument. A short timecharter FFA plus a long bunker swap is not a complementary hedge, it is partly the same trade entered twice, and it converts a hedged position into a leveraged view on the fuel price.

A bunker hedge belongs in two places. On a voyage-route contract or a physical voyage charter, where the owner pays for fuel and freight is quoted per tonne of cargo, the two exposures are genuinely separable: the derivative fixes freight and the swap fixes fuel. And on a timecharterer’s book, where hire and fuel are two distinct costs with no overlap at all. The instruments themselves, cash-settled against published marine fuel assessments in the same Asian-averaged structure, are covered at bunker hedging and bunker swaps and the published assessments at bunker price indices and benchmarks . The contractual alternative to a financial hedge is a bunker adjustment factor in the freight itself.

One structural parallel is worth naming. Both instruments are Asian-averaged against a published assessment and both raise the same benchmark-regulation question about their price reporting agency. The difference is that the freight contract references a freight rate under Annex I Section C(10) while the bunker swap references a commodity under C(5), so they sit in different limbs of the same annex.

The curve, and what it is for

The Baltic publishes the forward curve itself as forward assessments, on a tenor grid running from the current month to five months out, the current quarter to six quarters out, and one to five calendar years. Publication is at 1700 London for the dry curve and 1715 for the tanker curve.

Contango, a curve rising with tenor, and backwardation, a curve falling with tenor, are therefore readable from a named published series rather than inferred from broker talk. The tenor grid is also an honest map of liquidity: the far end is thin, and a position taken there is priced accordingly.

The curve’s most common use is not speculative. It is the market’s own price for the risk in a period charter decision: an owner offered twelve months of hire can compare the offer against the forward strip for the same period, and the gap is what the charterer is paying, or being paid, to take the ship rather than the paper. The same curve feeds ship finance and asset valuation , because a lender’s view of forward earnings is what supports a loan-to-value covenant, and it informs the timing of a sale and purchase decision.

What 2008 and 2009 actually taught

The market’s stress test is on the public record, and the record is a court judgment rather than a trade press estimate.

In Britannia Bulk plc (in liquidation) v Pioneer Navigation Ltd and Bulk Trading SA [2011] EWHC 692 (Comm), Flaux J gave judgment on 25 March 2011 on a preliminary issue arising from the appointment of administrators to Britannia Bulk on 31 October 2008. The contracts were cash-settled contracts for differences indexed to Baltic Exchange rates on the market-standard FFABA 2007 Terms. The issue was the financial consequence of automatic early termination of a series of FFAs, and specifically a nil loss argument built on the construction of Loss in the 1992 ISDA Master read with the Section 2(a)(iii) condition precedent. The argument was decided against the defendants.

The structural lesson is about credit, not about freight. The clearing houses absorbed the price moves; the bilateral market did not. That is what moved the market decisively toward clearing, and it is why an owner today asks first who the counterparty is and only second what the level is. The earlier attempt at exchange-traded freight risk, BIFFEX , had already failed for a different structural reason: it settled against a composite of many routes, so a hedger with single-route exposure carried unmanageable basis against a basket that moved for unrelated reasons.

Who trades, and through whom

An FFA needs no ship. A trading house with no vessels takes a position in exactly the same contract as an owner or a charterer, and that is what supplies liquidity to the owners and charterers who need it.

The participants divide by exposure rather than by type. An owner with open tonnage is naturally long freight and sells forward to fix earnings, and its opposite number on the physical side is the voyage charter freight it would otherwise be exposed to. A charterer, an industrial with a forward cargo commitment, or the holder of a contract of affreightment is naturally short freight and buys forward. A trip timecharterer hedges the exposure the trip timecharter contracts track. And a trading house takes either side, or trades the spread between routes and tenors.

Backhaul and repositioning decisions sit outside the contract entirely, so an operator improving realised earnings through triangulation beats its own hedge and should expect to. Trades are arranged by an FFA broker, usually a specialist desk inside a shipbroking house, which circulates a recap in the same way a chartering broker does for a physical fixture. The trade is then left bilateral on FFABA terms or given up for clearing. The panellists who produce the settlement index are themselves shipbroking firms reporting under the Baltic panellist system , which is why the assessment process and the derivative market share a professional population, and why the Guide to Market Benchmarks governs both.

The wet side of the market sits on the dirty and clean tanker indices , the gas side on the Baltic LNG and LPG indices and on independent assessments such as the Spark LNG series , and the whole structure sits alongside the physical charter party family: a derivative does not replace a time charter party , a trip time charter or a ballast bonus negotiation, it prices the risk each of them carries. Older assessment scales such as AFRA and the underlying ocean freight rates they measure remain the physical reference the whole edifice abstracts from, and the commission conventions written into every route definition are the same address and brokerage percentages a physical fixture carries. Where a physical contract references an index directly rather than being hedged against one, that is an index-linked freight contract and a different instrument entirely.

Sizing a hedge, step by step

A freight hedge is sized from the physical exposure, not from a view, and the arithmetic is short enough to do on the back of a fixture recap.

Identify the unit of the exposure first. An owner with open ship-days is exposed in days and hedges on a timecharter contract at one lot per day. A charterer with a cargo commitment is exposed in tonnes and hedges on a voyage-route contract at one lot per 1,000 tonnes. Crossing the two, hedging a per-tonne freight bill with a per-day contract, imports a conversion error on top of whatever basis already exists, because the conversion depends on the voyage assumptions rather than on anything the contract states.

Then match the period. The contract settles on the average of a calendar month, so a ship opening mid-month is only partly hedged by a full month of lots, and a voyage straddling two months is hedged by two partial strips rather than one. The far end of the curve is thin, so a twelve-month programme is normally hedged in the near months and rolled rather than fixed outright at the start.

Then decide how much to cover. Full cover fixes the level and gives up the upside, and on a fleet it removes the reason the owner is in the business. Partial cover, expressed as a percentage of open days, is the usual answer, and it is a board decision about earnings volatility rather than a trading decision about direction.

Then price the credit. A bilateral trade with a strong counterparty at a better level can still be the worse trade once the exposure is carried to settlement, which is exactly the lesson of 2008. The choice between bilateral and cleared is priced in margin and in funding, and the funding line has to be arranged first.

Freight options and the balance-of-month contracts

Options on freight futures are listed at every dry venue and are the instrument for an owner who wants downside protection without giving up the upside a forward sale surrenders.

The listed contracts are European style with equity-style margining and the premium paid up front, expiring on the last trade registration day with in-the-money options exercised automatically. Strike increments follow the underlying: USD 1 per day on a timecharter contract, USD 0.01 per tonne on a voyage contract. The Singapore Exchange lists the at-the-money strike at the exercise price nearest the previous day’s settlement of the underlying future, and applies position accountability rather than position limits.

Because the underlying settles on a monthly average, a freight option is economically an option on that average rather than on a single price, so its value behaves like an Asian option: the averaging suppresses volatility relative to a European option on a spot price, and the option is correspondingly cheaper. The Baltic publishes an implied volatility assessment alongside the forward curve, which gives the market a common reference for pricing rather than leaving each desk to fit its own.

Balance-of-month and daily contracts serve the opposite need. ICE lists Balmo futures out to two consecutive months, averaging only the pricing dates remaining after the trade date, and daily mini futures out to 130 consecutive business days. They exist because an operator’s exposure is often measured in the next fortnight rather than the next quarter, and a full month contract entered on the twentieth is mostly a bet on days that have already priced. The same reasoning drives the choice between fixing a single voyage and covering a break-even freight rate across a programme.

Limitations

No market-size figure appears in this article, and that is deliberate. Total market volume, open interest and venue market share all circulate widely in the trade press, and none of them could be traced to a document published by an exchange, a clearing house or the index administrator that opens on request. A large number with vague provenance is worse than no number, so this article gives none and points the reader at the venue’s own volume reporting instead.

No correlation figure between the derivative and the physical market appears either. There is peer-reviewed work on the relationship and this article has not read its results, so the structural point stands in its place: the contract settles on an index assessed by a governed panel under a published methodology, which is a defined process rather than a statistical relationship.

Contract specifications change and this article states them as read. Product codes, listed tenors, delisting dates and tick sizes are venue documents that move; a specification should be pulled from the venue before a position is taken. Where a figure here came from a reproduction rather than from the venue’s own document, it has been omitted rather than printed.

The FFABA 2007 text was not read for this article. The governing law is stated as English on the authority of the litigation, which is consistent with an English governing-law clause. No arbitration provision, no arbitral body and no small claims threshold is stated, because the form itself was not obtained and market understanding is not a source.

A hedge is not insurance. Every worked example here assumes the ship achieves the index, which is exactly what basis risk denies. The four sources of basis set out above are the reason a freight hedge protects a level rather than a result, and the reason an owner still has to run the ship well.

Related Articles