Understanding "Hedging" and "Locking" in Precious Metal Trading

When selling your material to Mid-States Recycling, we may ask whether you want to "hedge" or "lock" your metal. But what do these terms mean?

What Does It Mean to Hedge or Lock?

In precious metal refining and trading, these terms refer to setting a price for your material based on the current market value.

It is important to understand that there can be different meanings to these words, depending on the market. From our perspective, however, we treat these terms interchangeably. To “hedge” or “lock” means to secure a price in advance for a portion of your material to protect against market fluctuations.

We will price the material at the current market for however many troy ounces you are looking to hedge/lock. 

Once you choose to hedge/lock, a contract is created between you (the seller) and Mid-States Recycling (the buyer), ensuring the agreed-upon price.

What Happens if You Over-Hedge?

Hedging can help protect you from market swings, but if you hedge too much (over-hedging), you may not have enough ounces to cover your commitment. Here's what happens:

1. Mid-States Recycling typically allows up to 90% of your lot to be hedged, providing flexibility.
2. If your lot has fewer ounces than hedged:
   • Frequent customers may carry the hedge forward to a future lot.
   • Infrequent customers may be required to pay the price difference for the unhedged ounces (though this is rare).

Example of a Typical Transaction

Let's say you bring in a scrap lot with 10 net pure troy ounces:

• 9 troy ounces hedged at the current market price.
• 1 troy ounce priced at the market rate upon settlement.

You can choose to hedge fewer ounces or wait until settlement to see where the market stands.In this illustration, the max number of ounces you can hedge early is 9. You can hedge less, or not at all, and wait to see where the market is at the time of settlement.

Need Help with Pricing? Use the Karat Kalculator

Check out our Karat Kalculator to estimate the gold content of your scrap before hedging. If you have questions, contact our Trading Department at (847) 298-0010, extension 5 for expert guidance.