Identifier: C3T4L6 · Revision: 2026-10-26 · Classification: domestic

Decision and objectives

Separate listed specifications from available executable series. 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 separate listed specifications from available executable series; quantify rounded and partially filled hedge exposure; select an implementable alternative or justified deferral.

Prerequisite: C3T4L5; 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

Contract existence, series listing, broker support, quote availability and executable depth are five different checks. A specification can remain public when an expiry has no useful quotes for your size. A broker may not support a delivery or currency facility even though it is a member. A successful hedge record documents the actual route and remaining quantity.

Price and return drivers

For a linear currency hedge, residual quantity = obligation − filled contracts × units per contract. Rounding exposure and partial-fill exposure must not be confused: an intended integer quantity can still fail to fill. Stress the residual with an adverse price move, then compare that cost with the price and funding cost of an executable alternative.

Worked case

Hypothetical USD 18,600 payable, assumed USD 1,000 contracts. Eighteen contracts leave USD 600; nineteen overhedge USD 400. Only 12 of the intended 18 can actually be filled at the stated cost limit. The implemented hedge covers USD 12,000 and leaves USD 6,600, not USD 600. A TRY 5 rise costs TRY 33,000 on this residual. A supplied bank forward for the remaining USD 6,600 has a TRY 0.20/USD all-in premium to the comparison reference, or TRY 1,320; add a hypothetical TRY 300 service fee for TRY 1,620 total cost, subject to a confirmed credit line.

Adverse case

If the forward requires TRY 40,000 cash security but only TRY 25,000 remains after futures margin, funding gap is TRY 15,000. Combining routes then fails the cash constraint despite lowering nominal residual. Buying all dollars now at the supplied spot requires full principal and can use the spending reserve. The alternative must be compared against the same cash budget, not chosen solely because its quotation is available.

Practical use

Capture timestamped size and bid/ask sides, member access, settlement method, margin estimate and bank forward confirmation. Product family pages verify structure, never a live liquidity promise. Include partial-fill commissions, spreads, duplicate-order risk, cash conversion and funding. Recheck the entire plan after cancellation or a rejected order rather than retain the requested size in the ledger.

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

A defensible outcome can be a smaller funded hedge plus a quantified residual, a mixed hedge with confirmed resources or deferral. Do not claim full protection from intended orders. A missing executable route is not solved by using a foreign product with unverified access in the domestic sequence.

Practice and references

Exercise: a TRY 850,000 beta exposure and TRY 120,000 contract notional. Calculate the target, seven-contract residual and residual if only five fill, then stress a 6% move. Solution: 850,000 / 120,000 = 7.0833 contracts. Seven covers TRY 840,000, leaving TRY 10,000. If only five fill, residual becomes TRY 250,000; a 6% market move implies TRY 15,000 residual change before estimation error and cost. Rounding was small; execution failure was material.

Takeaway: Select an implementable alternative or justified deferral using the actual cash schedule, with every excluded cost and remaining exposure stated.

Reference card: viop-future. Formula: Implemented hedge residual. Glossary: Executable depth, Rounding risk. Next lesson: C3T8L1. Topic test.

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

Related product cards: viop-currency-future.

Shared reference guide | Class examination