Hedge funds lured by the choppy waters of freight derivatives

Freight derivatives, once peripheral to the energy market, are being touted as one of the next attractive niches for hedge funds. But will the growth in their liquidity continue, or is this a false start for the market?

There's a buzz surrounding the hitherto sedate freight derivatives market. Long used by oil companies wanting to hedge rising or volatile shipping costs, the market is now increasingly viewed as a place in which financial institutions, including hedge funds, can operate and make money.

Traded volumes of forward freight agreements (FFAs) quadrupled in 2004, according to most estimates, and turnover