Identifier: C3T4L4 · Revision: 2026-10-26 · Classification: domestic

Decision and objectives

Convert commodity quotation units into hedge cash exposure. The decision record must connect the exposure, cash dates and implementable contract, rather than stop at a favorable price forecast.

By the end, you can convert commodity quotation units into hedge cash exposure; separate gram, ounce, tonne and electricity-period conventions; identify currency and consumption-shape residuals.

Prerequisite: C3T4L3; completed Classes 1 and 2 and the Stock Market School foundation or Forex School foundation. All cases below are hypothetical; their prices, costs, rates, dates, contractual assumptions and collateral amounts are teaching inputs, not current offers.

Mechanics

Commodity contract names do not define interchangeable exposures. TRY/gram gold combines metal and currency drivers in a lira quotation; a USD/ounce contract quotes a different unit and currency. Copper can be quoted per tonne. Electricity contracts refer to a delivery period and benchmark load shape, not a warehouse commodity that can be stored at will. Cash settlement pays a reference difference rather than guaranteeing physical supply.

Price and return drivers

Hedge units must first share one physical basis. For the supplied conversion, one troy ounce = 31.1035 grams. Convert physical quantity, quotation currency, contract factor and settlement currency separately. Converting a quoted dollar change into lira at a changing FX rate adds another source of return; a simple metal-only hedge cannot eliminate it automatically.

Worked case

A hypothetical jeweler expects to buy 2,000 grams and considers TRY/gram futures with one-gram size, consistent with the retrieved standard specification. At TRY 3,000/gram, 2,000 contracts represent TRY 6,000,000. A TRY 150/gram increase produces TRY 300,000 futures gain and TRY 300,000 higher reference procurement cost. Supplied commission TRY 6,000 and collateral funding TRY 12,000 leave TRY 18,000 protection cost before tax and local dealer spread. Initial collateral is supplied separately; it is not the metal purchase payment.

Adverse case

If the local delivered metal rises TRY 190/gram while the reference rises TRY 150, residual procurement cost is 2,000 × 40 = TRY 80,000 before costs. Replacing the hedge with hypothetical one-ounce USD contracts requires 2,000/31.1035 = 64.3014 contracts before rounding and leaves FX exposure. For a fictional electricity contract representing 720 MWh, a factory using 500 MWh cannot become exactly matched by buying one contract; the 220 MWh excess and hourly profile remain.

Practical use

Read the separate official precious-metal, metal and energy pages and the chosen current series. One-gram gold size is verified; the one-ounce and 720-MWh figures above are hypothetical comparisons, not assertions about current series. Confirm market depth, currency conversion, tick cash, cash settlement, brokerage, collateral financing and physical procurement cost. No live liquidity is implied.

Reconcile the confirmation, position register and cash statement separately. Costs include the quoted bid/ask spread, brokerage and clearing charges, collateral or principal financing, currency conversion, custody where relevant, and exit or termination charges. A mark is not a fill. Any amount explicitly excluded below remains outside the reported result. Tax is excluded from these teaching cases: an actual comparison requires income year, investor residence and individual/corporate status, contract and acquisition dates, settlement form and effective law. The GIB guide, checked 2026-10-26, covers 2025 individual investment income, so its publication date alone does not settle a 2026 derivative liability.

Decision boundaries

Choose a contract that matches the material, unit, currency, place and period as closely as feasible. A round contract count can be commercially large. If only a mismatched reference is available, quantify its residual and compare procurement agreements or a smaller hedge. Do not add contracts just to remove a decimal from a spreadsheet.

Practice and references

Exercise: hypothetical 100 kg metal exposure and a 25 kg contract. Calculate the count and compare a 1-tonne route; then calculate the residual if local price rises TRY 30/kg and futures TRY 24/kg. Solution: 100 / 25 = four contracts. A 1-tonne contract would cover ten times the exposure, not one tenth. If the business reference rises TRY 30/kg and futures only TRY 24/kg, residual is 100 × 6 = TRY 600 before costs; matching mass alone has not matched price.

Takeaway: Identify currency and consumption-shape residuals using the actual cash schedule, with every excluded cost and remaining exposure stated.

Reference card: viop-future. Formula: Commodity unit hedge count. Glossary: Troy ounce, Load shape. Next lesson: C3T4L5. Topic test.

Sources and verification date (2026-10-26):

Related product cards: viop-gold-future, viop-metal-future, viop-energy-future.

Shared reference guide