Key points
- Core steps: hedging plan → hedge instruction → futures fill → futures–physical matching → futures P&L allocation → combined order P&L.
- Each match records the matched quantity, the basis and the P&L on both the futures and the physical side, as the basis for evaluation and analysis.
- Futures transaction records, settlement statements and positions must be reconciled daily, so that the P&L allocated to orders agrees with the futures broker’s settlement.
In practice
In companies without integrated management, the business unit is assessed on physical gross margin and the futures desk on futures P&L, and each works in isolation. A physical profit is credited to good trading and a futures loss is blamed on the trader, when in fact they may simply be two sides of the same hedge.
Integration ties the two together from the planning stage. Hedging plans are set annually, quarterly and monthly; every hedge instruction is attached to a physical contract, order or lot; futures fills are matched by rule; and at month end futures P&L is allocated into order P&L. Management then sees the true return on each order, customer and commodity after the effect of hedging.
How Tranexio supports it
Tranexio provides tiered hedging plans, hedge instructions bound to physical anchors, import of futures transaction records and reconciliation of settlement statements, futures–physical matching, monthly allocation of futures P&L into order P&L, and deviation monitoring. See Hedging and hedge accounting.