(4) Marketing Practices to Reduce The Risk of Price Fluctuation

Flashcards detailing key vocabulary related to marketing practices that mitigate risks from price fluctuations in commodities.

Futures Market

A marketplace for trading contracts that obligate the buyer to purchase an asset and the seller to sell an asset at a predetermined future date and price.

Margin Call

A demand by a broker that an investor deposits further cash or securities to cover potential losses.

Hedging

A risk management strategy used to offset losses in investments by taking an opposite position in a related asset.

Strike Price

The predetermined price at which an option contract can be exercised, allowing the buyer to buy or sell the underlying asset.

Call Option

An option that gives the buyer the right, but not the obligation, to buy an underlying asset at a specified price within a specified time.

Put Option

An option that gives the buyer the right, but not the obligation, to sell an underlying asset at a specified price within a specified time.

Premium

The price of an options contract, determined by market supply and demand.

Basis

The difference between the cash price of a commodity and the futures price of the same commodity.

Short Position

A position in which an investor sells a futures contract with the expectation that the asset will decrease in value.

Options Market

A financial market where options contracts are traded, allowing buyers to speculate or hedge while limiting their potential loss.