# Derivatives

Derivatives are financial instruments used to hedge risk exposure. In shipping, the most common use case is protecting against movements in bunker prices, freight rates, or emission allowance prices between the time a cargo is fixed and the time the voyage executes.

When a voyage contract is committed to, the revenue side is fixed — but the cost side remains exposed to market movements. A bunker hedge locks in a reference price for fuel, so that whether the market goes up or down, the net position stays predictable. The same logic applies to freight and emissions.

> **Important:** Derivatives are purely financial. A bunker hedge does not involve any physical delivery of fuel. An FFA does not represent physical cargo. They exist solely to manage financial exposure.

The Derivatives module in VMS lets finance users record and manage derivative contracts, organise them into packages, and link them to the voyages they are intended to cover.

{% hint style="info" %}
**Security Roles** required for the **Derivatives Module** are: **-** Read/View: **Derivatives Viewer -** Create/Edit/Delete: **Derivatives Contributor**

*These must be added to the relevant **Security Groups** to give the respective access level.*
{% endhint %}

***

### Key Concepts

#### Agreement Types

| Type            | What it means                                                                                                                                                                                                      |
| --------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |
| **Swap**        | Both parties exchange cash flows based on the difference between the agreed fixed price and the actual market price at settlement. The holder is fully exposed to both upside and downside. Most common structure. |
| **Call Option** | Gives the holder the right (but not the obligation) to buy at the agreed strike price. If the market rises above the strike, the option is exercised and the difference is received. A premium is paid upfront.    |
| **Put Option**  | Gives the holder the right (but not the obligation) to sell at the agreed strike price. Used when there is exposure to falling freight rates. A premium is paid upfront.                                           |

#### What Can Be Hedged

| Derivative Type        | What it hedges                                                           |
| ---------------------- | ------------------------------------------------------------------------ |
| **Bunker Hedge**       | Exposure to rising or falling bunker fuel prices (VLSFO, MGO, HFO, etc.) |
| **Freight (FFA)**      | Exposure to freight rate movements via Freight Forward Agreements        |
| **Emission Allowance** | Exposure to EUA or other emission allowance price movements              |
| **Commodity**          | Other commodity exposures — currency, energy, etc.                       |

#### Data Structure

Derivatives are organised in three levels:

```
Derivative Package  (optional grouping)
  └── Derivative  (the contract)
        └── Derivative Lines  (settlement periods)
              └── Voyages  (linked for reference)
```

A **Derivative Package** is an optional container for grouping related contracts — for example, all hedges related to a COA. 

A **Derivative** is the contract itself: the counterpart, the type, the terms, and the dates.

**Derivative Lines** define the individual settlement periods within the contract. Each line has a quantity, a fixed rate, and a measurement unit. One line can be linked to multiple voyages.

***

### Derivative Packages

Packages are an optional way to group related contracts together. A package called `Q3 2026 Bunker Hedges`, for example, can hold all bunker contracts for that period for easier filtering and reporting.

#### Creating a Package

1. Go to **Finance → Derivatives**.
2. Select the **Packages** tab.
3. Click **New Package**.
4. Enter a unique **Name** and a **Code**.
5. Save.

> Both Name and Code are required and must be unique across all packages.

#### Renaming a Package

Click the package row in the grid. Name and Code can be edited inline.

#### Deleting a Package

A package can only be deleted if it contains no derivatives. If derivatives are assigned to it, the system will block the deletion with an error. All derivatives must be removed or reassigned first.

#### Statuses & Lifecycle

| Status      | Meaning                                                                                                        |
| ----------- | -------------------------------------------------------------------------------------------------------------- |
| **Draft**   | Created but not yet confirmed. All fields editable. Starting status for all new derivatives, including copies. |
| **Fixed**   | Contract terms are confirmed and the derivative is active.                                                     |
| **Checked** | Reviewed and verified by a second party.                                                                       |

#### Changing the Status

Click the status chip in the derivative drawer. A dropdown shows the available transitions. Select the new status and confirm.

***

### Master Data

The Derivatives module uses several reference tables. Most are pre-populated with standard values.

> **There is currently no master data management UI for derivative reference tables.** Adding, changing, or removing values in these tables must be done via the API. Contact the system administrator or Dataloy support.

#### System-Managed (maintained by Sedna, no customer input needed)

| Table           | Values                                                     |
| --------------- | ---------------------------------------------------------- |
| Derivative Type | Bunker Hedge, Freight (FFA), Commodity, Emission Allowance |
| Agreement Type  | Swap, Put Option, Call Option                              |
| Payment Method  | Over-the-counter (OTC), Cleared (via Clearinghouse)        |

#### Customer-Managed (pre-populated, customisable via API)

| Table                 | Default Values                                                                            | Notes                                                                                    |
| --------------------- | ----------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- |
| Accounting Category   | Hedge, Speculation, Internal (Strategic), Economic Hedge                                  | API only                                                                                 |
| Hedge Against         | COA Line, Voyage (Forward/Spot), TC IN Duration, TC Out Duration, Derivative (washed out) | API only                                                                                 |
| Premium Payment Terms | After Settlement, On First Settlement, On Trade Date                                      | Shares existing payment terms table, and is maintained via **Master Data Payment Terms** |


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