Jan 29, 2019 (China Knowledge) - The Shanghai Futures, Zhengzhou Commodity and Dalian Commodity exchanges which are the three commodity exchanges in mainland China have now added three new derivative options, doubling the number of currently offered to investors.
The new options added are for corn, cotton and natural rubber, bringing the number of commodity derivatives offered on the mainland to six. The natural rubber option is the first of its kind in the world.
Options are contracts which gives holders the right but not obligation to buy or sell an underlying asset of instrument at a specified price prior to or on a specific date. Such listed options help to bring about a more efficient pricing mechanism and can act as risk management tools for firms.
More commodity options are likely to be introduced in China in the future to allow the futures market to better serve the real economy with a wider range of tools and with greater effect. These new options add some of the initiatives the futures market has taken to attract foreign investors and open the country’s financial markets such as introducing over-the-counter derivatives and insurance-futures combinations.
The natural rubber options will help to meet demand for diversified and personalized risk management tools while enhancing the influence of China’s rubber market to help major rubber producing provinces such as Hainan and Yunnan to overcome poverty.
The new corn options will not only help companies to hedge against price fluctuations but can also be combined with corn futures to create various protective hedging strategies according to the company’s need.
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