Number of futures contract for hedging

DBDuy Bach8y ago

Hi John, To determine the number of future contracts required to hedge, we have to calculate the hedge amount first. I dont really know which rate I should use to calculate this hedge amount, whether I should convert at spot rate or I should convert at future price on the date of setting up the hedge? I saw different answers in books and lectures so quite confused which one is right Thanks

John MoffatTutor8y ago#1

There is an argument for both! However best is to use the current future price. (In fact it is rare for it to actually make a difference in the number of contracts, because of rounding to the nearest contract, and you are unlikely to lose any marks even if you are a contract different :-) )