Market focus: derivatives - Risky business

Companies that are heavy consumers of energy are particularly susceptible to market volatility. For such end-users, proper use of risk management techniques can mean make or break, says Eric Fishhaut of GlobalView

Free-market energy prices are among the most volatile of all commodities, encouraging consumers to find ways of protecting their budgets. Risk management – involving hedging with derivatives, such as futures, options, over-the-counter (OTC) forwards and swaps – is becoming a critical means of reducing exposure to fluctuating market prices. When used prudently, derivatives are effective tools for isolating financial risk and reducing exposure to risk. Derivative contracts transfer price risk to