Freight derivative
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Freight derivatives, which includes Forward Freight Agreement (FFA) and options based on these, are financial instruments for trading in future levels of freight rates, for dry bulk carriers and tankers. These instruments are settled against various freight rate indices published by the Baltic Exchange, Platt's, and the International Maritime Exchange (IMAREX). FFAs are often traded over-the-counter (through brokers), but screen-based trading is becoming more popular, e.g. through IMAREX. Trades can be given up for clearing by the broker to one of the clearing houses that support such trades. There are four clearing houses on freight: NOS Clearing, LCH.Clearnet, NYMEX Clearport, SGX (Singapore). Freight derivatives are primarily used by shipowners and operators, oil companies, trading companies and grain houses as tools for managing freight rate risk.
