{"id":6623,"date":"2025-02-04T07:18:16","date_gmt":"2025-02-04T07:18:16","guid":{"rendered":"https:\/\/www.alcircle.com\/blog\/?p=6623"},"modified":"2025-02-04T07:18:32","modified_gmt":"2025-02-04T07:18:32","slug":"hedging-with-jorge-episode29understanding-borrowing-lending","status":"publish","type":"post","link":"https:\/\/www.alcircle.com\/blog\/hedging-with-jorge-episode29understanding-borrowing-lending","title":{"rendered":"Hedging with Jorge #Episode29: Understanding Borrowing &amp; Lending"},"content":{"rendered":"\n<p>So far, we\u2019ve covered borrowing and are now getting into lending. Remember this simple rule: you&#8217;re lending when you sell the nearby contract and buy the forward one. And when you buy the nearby and sell the forward, that\u2019s borrowing.<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<iframe loading=\"lazy\" title=\"Hedging with Jorge #Episode29: Understanding Borrowing &amp; Lending in Commodity Trading\" width=\"696\" height=\"392\" src=\"https:\/\/www.youtube.com\/embed\/cWPOMpvWYs0?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n<\/div><\/figure>\n\n\n\n<p><\/p>\n\n\n\n<p><strong>Example of Lending<\/strong><\/p>\n\n\n\n<p>Let\u2019s look at an example. Suppose I\u2019m long in March, but I need to be long in April. To close my March position, I do the opposite transaction\u2014I sell March and buy April. That\u2019s lending. Now, let\u2019s see what happens in different market conditions.<\/p>\n\n\n\n<p><strong>Lending in Contango vs. Backwardation<\/strong><\/p>\n\n\n\n<p>In a contango market, forward prices are higher than nearby prices. So when you lend, your purchase price is higher, meaning you lose money. But in backwardation\u2014like aluminum is right now\u2014the forward price is lower, so lending makes you money because you\u2019re buying at a cheaper price.<\/p>\n\n\n\n<p><strong>Another Lending Example<\/strong><\/p>\n\n\n\n<p>Now, let\u2019s say I\u2019m short in April but need to be short in March. To roll my position, I sell in March and buy in April. Again, that\u2019s lending. And just like before, if we\u2019re in contango, lending results in a loss. But in backwardation, it\u2019s profitable.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>So far, we\u2019ve covered borrowing and are now getting into lending. Remember this simple rule: you&#8217;re lending when you sell the nearby contract and buy the forward one. And when you buy the nearby and sell the forward, that\u2019s borrowing. Example of Lending Let\u2019s look at an example. Suppose I\u2019m long in March, but I [&hellip;]<\/p>\n","protected":false},"author":89,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":{"0":"post-6623","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-open-forum-for-aluminum-community-blog"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Understanding Borrowing &amp; Lending<\/title>\n<meta name=\"description\" content=\"covered borrowing and are now getting into lending\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.alcircle.com\/blog\/hedging-with-jorge-episode29understanding-borrowing-lending\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Understanding Borrowing &amp; 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