# Hedging and hedge accounting

Hedging and hedge accounting in Tranexio link physical exposure to futures and FX instruments through hedge relationships. Exposure is calculated in real time, deviations are monitored, futures P&L is allocated to order P&L, and effectiveness testing and hedge accounting entries follow IFRS 9 / CAS 24.

## Key points

- **One view of exposure**：Real-time exposure = physical position − hedge position; contracts in force but not yet price-fixed are shown separately as contingent exposure.
- **From strategy to instruction**：A hedging strategy sets the target hedge ratio, hedge instructions are bound to physical anchors, and deviations and over-hedging risk trigger alerts automatically.
- **FX hedging**：Forward FX contracts, FX options and other instruments can cover several contracts in one deal, with FX exposure and hedge positions managed together.
- **Combined physical–futures accounting**：Physical and futures positions are matched line by line and futures P&L is allocated monthly to order P&L, so the profit the business sees includes the effect of hedging.
- **Hedge accounting**：Hedge relationship designation, prospective and retrospective effectiveness testing and reclassification of the hedging reserve, with hedge accounting entries generated by rule.

## 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

1. **Measure exposure**: aggregate physical positions, unpriced contracts and hedge positions into an [exposure](https://tranexio.com/en/resources/glossary/exposure/) view by commodity, legal entity and currency.
2. **Strategy and instructions**: a hedging strategy sets the target hedge ratio and instruments; [hedging](https://tranexio.com/en/resources/glossary/hedging/) instructions are bound to physical anchors such as contracts, orders or inventory and executed through [futures trading](https://tranexio.com/en/capabilities/derivatives-trading/).
3. **FX hedging**: FX exposure is aggregated by currency and [hedged](https://tranexio.com/en/resources/glossary/fx-hedging/) with forwards, options and other instruments, with hedge positions linked to contracts.
4. **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](https://tranexio.com/en/resources/glossary/futures-spot-integration/).
5. **Hedge accounting**: designate hedge relationships and keep the documentation, run [effectiveness tests](https://tranexio.com/en/resources/glossary/effectiveness-test/) (ratio analysis and other quantitative methods, with configurable thresholds) each period, and generate fair value or cash flow hedge entries under [hedge accounting](https://tranexio.com/en/resources/glossary/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 |

## FAQ

### Which accounting standards does hedge accounting support?

IFRS 9 and the corresponding Chinese Accounting Standard, CAS 24. The platform provides hedge relationship designation, effectiveness testing, fair value hedge and cash flow hedge entries, and reclassification of the hedging reserve.

### How is effectiveness tested?

Each period the system runs prospective and retrospective tests on every hedge relationship, calculating the ratio of value changes in the hedging instrument and the hedged item to confirm that the economic relationship and hedge ratio still hold; an 80%–125% band can be configured as an internal threshold. The test workings and results are archived for audit.

### Can futures P&L be attributed to each order?

Yes. Hedge instructions are bound to physical anchors; once physical and futures positions are matched line by line, futures P&L is allocated monthly to the corresponding order P&L, so traders and management see true profit including the effect of hedging.

### How are FX hedges linked to contracts?

FX exposure is aggregated by contract and currency, and one FX hedge can cover several contracts with the link recorded. On settlement at maturity, the FX result is assigned to the relevant contracts, making it easy to see where exchange gains and losses come from.

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Source：https://tranexio.com/en/capabilities/hedging-accounting/ · Updated 2026-10-06 · © 上海赛淘数据技术有限公司 / Shanghai Saitao Datatech Co., Ltd