In this series, Baltic Exchange showcases key details and information behind Forward Freight Agreements (FFAs) to help potential entrants better understand the entire FFA process and support the business development aid for FFA brokers.

The Baltic's FFA resource can be found on our website by  clicking here  or by clicking “FFAs” on the top taskbar. Please direct any comments or queries to Nadia Mirza, Head of Business Development at the Baltic.

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FFA Brokers

To trade FFAs, companies must partner with a specialised broking firm as the FFA is voice brokered. These brokers,  within established shipbroking firms, are regulated by monetary regulators and require their clients to complete mandatory Know Your Customer (KYC) checks.

Brokers provide insights and pricing via phone, messaging, or dedicated lines. Trades remain anonymous, hiding counterparty identities. 

Companies usually onboard with multiple brokers to gain a more comprehensive market view, but not so many as to be unmanageable.

A list of Baltic FFA brokers can be found here under Forward Assessments and Options Assessments.

 

General Clearing Member 

 

General Clearing Members (GCMs) are approved commercial banks or financial institutions that hold the collateral and margins for each trade, managing  the flow to and from the clearing houses;  CME, EEX, ICE and SGX.

They are the guarantor and payment agent for the trades, sitting between the client and the clearing house and take on 100% of the risk themselves, which is why they impose margin requirements. 

Baltic’s FFA brokers can advise on GCMs that specifically cover freight.

 

Trading

In a fast-paced market, brokers provide information throughout the day to their clients, including new and improved bids and offers as they come in. 

Brokers work closely with their clients to negotiate in the FFA market until   an acceptable trade is reached for involved counterparties.

Once a trade is concluded, it is a binding deal. A Trade Confirmation Note from the broking shop detailing the trade is then delivered, whilst their back office will have given up the trade to the relevant clearing house.

There are several advanced trading strategies used by traders to cover their position. Clients work closely with their FFA broker to discuss the various options, including time spread trading and options trading.

Trading strategies, including FFAs and freight risk management, are available to learn through the Baltic Academy.

 

Settlement

FFAs settle on the average underlying spot Baltic index at the end of every month. 

Clearing houses use daily pricing from Baltic Exchange forward curves to establish the daily mark-to-market position to reflect the current market value of the trade. The difference between the settlement price and the fixed trade price is the amount due or to be received. This either means money may be drawn to pay the margin or received into your GCM account.

Traders do not need to wait until expiry to exit an FFA contract. They can exit before expiry date by either selling the contract or purchasing an opposing contract to the original trade at any time.