The stability brought on by the derivatives market not only benefits manufacturers, but also encourages investment in EV technology and infrastructure further benefiting the globe and climate as a whole. Investors are more attracted to projects with predictable costs and revenues, which have been focal points in previous green projects due to the perceived risk associated with investing in green technologies. Increased investment can accelerate the development and implementation of EV infrastructure, such as cheaper manufacturing processes, making EVs more accessible and appealing to consumers.
HOW CAN THE DERIVATIVES MARKET PLAY A HAND IN ACHIEVING A GREENER ECONOMY So how can the derivatives market play a hand in achieving a greener economy, especially when it comes to the adoption of EVs? Financial derivatives play a crucial role in mitigating price volatility in the energy and precious metals markets for producers and investors, especially EV manufacturers. These results are achieved through the inherent nature of the futures market which provides manufacturers the ability to hedge against price volatility, and reduce counterparty risk. Additionally, the liquidity of the marketplace provides manufactures the ability to enter and exit positions to flexibly manage their price risk, actions which are extremely desirable when dealing with commodities that are highly volatile.
The Cobalt futures contract on the London Metal Exchange, which is a physically settled contract for the EV sector, provides manufacturers the means to hedge against potential price spikes, ensuring that sudden increases in raw material costs do not disrupt their production schedules or financial stability while also giving them the means to have secure and standardized delivery of the metal [LME Cobalt | London Metal Exchange]. This product, offered by the LME, is particularly valuable for EV manufacturers who reside in an industry where supply chain disruptions and geopolitical risks can have dire consequences and costs. A tale that we have seen before, back in 2022. Price stability is crucial for long-term planning and investment, as it allows manufacturers to forecast costs and revenues with greater accuracy – an integral piece of creating a financially sustainable business not only for profit, but for a means to lead the way in green-focused initiatives.
The derivatives market is an incredibly powerful risk management tool that plays a pivotal role in advancing greener roads by providing the financial means to manage price volatility and help ensure predictable financial forecasts for EV manufacturers, something that will help curate the transition to carbon neutrality. As the world continues to transition towards a greener economy, leveraging the power of financial derivatives will be essential in overcoming economic challenges associated with implementing greener technologies and fostering the widespread adoption of electric vehicles.
JP Steiner Trade Desk Clerk Archer Financial Services, Inc. A Subsidiary of ADM Investor Services Inc.
E:
john.steiner@
admis.com
THE DERIVATIVES MARKET IS AN INCREDIBLY POWERFUL RISK MANAGEMENT TOOL THAT PLAYS A PIVOTAL ROLE.
25 | ADMISI - The Ghost In The Machine | Q1 Edition 2025
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