Introduction to Commission Costs
In the previous examples of short and long hedges you established an expected selling price and purchase cost, respectively. In these formulations you ignored costs associated with the purchasing or selling of futures contracts. Incorporating these commission costs decreases the net selling price or increases the net purchase cost. The following example of short and long hedges show these impacts. You should note that when completing this worksheet we are assuming a constant basis.
Note that in the above examples we have assumed away any basis risk. The actual net selling or purchase price will depend on the actual basis obtained.