A derivative whose underlying is the freight price/rate in the shipping markets (such as the container ship markets). Shipping derivatives were first introduced in 1985 and are typically used by the dry bulk and tanker shipping markets. Participants are not confined to shipping companies, but also include utility and trading companies, financial institutions, hedge funds, clearing houses, etc. By tapping into shipping derivatives markets, participants in the shipping industry can stabilize or hedge their future income or costs and mitigate uncertainty and volatility arising from the fluctuations in freight prices and rates. Like other types of derivatives, shipping derivatives are used for different purposes: hedging, trading, and speculation. The most commonly used forms include: forward freight agreements (FFAs), freight futures, freight rate swaps, among others.
Shipping derivatives are also known as freight derivatives.
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