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financial terms can mean different things to different people to producers and consumers of metal these words all mean one thing risk in order to protect against this risk the metal community uses the London Metal Exchange futures and options contracts to insure themselves or hedge against adverse price movements for example its January and a battery manufacturer lets call them batting needs a hundred tons of lead to make a large order of batteries in May so they agree a deal with the lead producer lets call them lead coat to take delivery off and pay for a hundred tons of lead in April or whatever the going rate is then at this point both LED comb and batting are both in a risky position suppose LED is trading at $2,000 a ton in January what happens in April if the price drops to $1,000 lead car would be out of pocket $1,000 a ton and if the price goes up to $3,000 batting would not be happy because they would be paying $1,000 a ton more than the price in January this is where the
