Washout & Circles

Washout and Circles

In commodity trading, a wash out refers to the cancellation of a physical delivery obligation by settling the contract financially. Instead of delivering the actual commodity, the parties involved agree to a financial settlement based on the price difference between the contract price and the current market price. This method is often used to avoid the logistics and costs associated with the physical transfer of commodities.

Circles occur when multiple traders hold contracts for the same commodity, creating a loop where each trader owes another a delivery of the same commodity. To simplify the situation, the traders agree to net out their positions, reducing the need for multiple deliveries and only settling the net differences. This is particularly common in markets with standardized contracts and multiple participants.

Especially DycoTrade customers in high-volume markets such as grain or metals see the efficiency of having this functionality in their CTRM solution. Grain traders often see that physical delivery can be logistically challenging and costly. Wash out and circles streamline the process by minimizing unnecessary transport and storage, thereby enhancing market efficiency and reducing operational costs. Metal trading companies are often confronted with stringent quality specifications. Wash out and circles help avoid discrepancies in quality by reducing the physical handling and transfer of the commodity, ensuring that quality remains consistent and contract disputes are minimized.

DycoTrade’s Wash Out & Circle functionality solves these problems by providing an easy-to-use IFRS-compliant and integrated solution for dealing with these complex transactions, fully embedded in Microsoft Dynamics 365 for Finance and Supply Chain Management.