The Potential Pitfalls for Failing to Hedge

Would you drive a car with no insurance?

Having been a commodity trader and investment advisor for over seven years now I have literally met with thousands of clients. During this time, it continues to perplex me why so many individuals and corporations fail to take the necessary precautionary measures to protect one of their most important things in their lives – their money and their business. Why are not more firms hedging?

There are many excuses that I’ve encountered while trying to find the answer to this conundrum and they include Cost, Lack of education on the topic, but the common denominator – Laziness.

It truly perplexes me how multi-billion dollar corporations such as Suncor or Barrick Gold would even contemplate running their business without hedging especially when their entire business revolves around extremely volatile commodities. The most recent and epic case being Suncor’s first quarter results showing a loss of $341 versus a net income of $1.49 billion from the previous year with the vast majority of the loss due to the collapse in oil prices.

The cost of hedging is something that can be managed expertly by speaking to a professionally licenced investment advisor. By sitting down with an advisor, your business will benefit from the expertise and experience of a trained individual whose sole focus should be to find you the best protection for the least amount of cost. There are solutions for nearly every scenario and you owe it to yourself to explore the options.

Lack of education on hedging is also a prevailing issue in the business community. While business owners and individuals are experts in their field, finance and hedging is probably not theirs. There are many avenues to educate ones’ self but it starts with asking questions. Again, contacting a licenced professional for help is your best bet.

Do rising/falling commodity or currencies effect your business in anyway? If it does, you owe yourself to get educated on hedging because it’s not a matter of IF your business is at risk – you already are and the potential ramifications could be disastrous. Just as you wisely do not drive your car without insurance – would you drive your business without protection either?

Chippingham Financial Group are experts in the Commodity and Foreign Exchange Futures markets. We can help you navigate the complexities of the markets.