Mechanism Design Of Iron Trade Company A Using Futures Tools To Guard Against Risk

With the changing economic environment and economic slowdown as the new normal,The domestic steel market continuous emergence of roller coaster market.There’s a consecutive 18 months’ unilateral decline in 2014-2015,and then rise and drop sharply in 2016.Many steel traders suffered a great loss or even bankruptcy in this terrible wave of market.This phenomenon is reflecting that the financial attributes of steel products is becoming more and more strongly,and the information is highly transparent.In such an environment,the top priority for steel trading companies is to find a way to prevent or transfer the market risk,which aimed at avoiding the operating and financial risks and ensuring the company has a stable profit.This thesis takes the A company as the research sample,and describing its business model and the current situation of risk control.By comparing the A company and the RL company,which has the best operating performance and good at risk prevention,we can make a Research on risk prevention and hedging mechanism.Firstly,this thesis describes the operation and business mode of A Company.Because of the lack of operational risk identification and control mechanisms,the business modes like self-operation and pallet production made the A Company suffered heavy losses in the past a few years.Secondly,this thesis analyzes the A Iron Trade Company’s risk-control-problems.A Company depended too much on the individual decision making by their manager,but they know few about how to reduce the business risk by some means like futures tools.Once they make a wrong decision like the market volatility beyond their consideration,and at the same time their customers are not willing to purchase,then they will face the situation like inventory depreciation or even the risk of default.Finally,this thesis puts forward the prevention mechanism of risk,and setting the risk management target by futures tools.While futures tool has a significant advantage for the company to hedge market risk,but it’s also danger.So,the system and safeguard should be established before they use it,for example,setting up risk control department,training professionals,inventory management and financial settlement etc.In summary,by comparing the difference of business model and risk control measures between A Company and RL Company,we can see that the futures tool has significant advantages on dealing with the risk of national policy’s changing,market fluctuation,delayed delivery by supplier and inventory depreciation.