The problem
Many companies hedge, yet cannot say what the hedging actually achieved:
- physical positions sit in the business system and futures in traders’ spreadsheets, so exposure is only totalled at month end;
- futures P&L is booked as investment income, making physical profit look volatile;
- hedge designation documents and effectiveness tests are prepared by hand and hard to evidence at audit;
- the link between FX hedges and contracts is unclear, so exchange gains and losses cannot be attributed.
How Tranexio handles it
- Measure exposure: aggregate physical positions, unpriced contracts and hedge positions into an exposure view by commodity, legal entity and currency.
- Strategy and instructions: a hedging strategy sets the target hedge ratio and instruments; hedging instructions are bound to physical anchors such as contracts, orders or inventory and executed through futures trading.
- FX hedging: FX exposure is aggregated by currency and hedged with forwards, options and other instruments, with hedge positions linked to contracts.
- Physical–futures matching: price-fixed physical positions and futures hedge positions are matched line by line, recording basis and physical and futures P&L; futures P&L is allocated monthly to order P&L for combined physical–futures accounting.
- Hedge accounting: designate hedge relationships and keep the documentation, run effectiveness tests (ratio analysis and other quantitative methods, with configurable thresholds) each period, and generate fair value or cash flow hedge entries under hedge accounting rules.
Key controls
| Control | How it works |
|---|---|
| Hedge ratio | An alert is raised when the actual hedge ratio leaves the target range |
| Over-hedging alert | A warning appears when hedge positions exceed physical exposure |
| Instruction binding | Hedge instructions must reference a physical anchor; otherwise the position counts as speculative |
| Effectiveness | A result outside the range prompts discontinuation or re-designation of the hedge relationship |
| Automated entries | Mark-to-market and hedge accounting entries are generated by rule and pushed to finance |