Shipowners contract to carry cargo for an agreed price per tonne while the charter market hires out ships for a certain period.
FFAs are often traded through broker members of the Forward Freight Agreement Brokers Association (FFABA), such as Arrow Futures, Clarkson's Securities, Marex Spectron, SSY - Simpson Spence & Young, Braemar Seascope LTD, Freight Investor Services, BGC Partners, GFI Group, ACM Shipping Ltd, BRS, Tradition-Platou and ICAP.
Recently, with commodities standing at the forefront of international economics, the large financial trading houses, including banks and hedge funds, have entered the market.
Baltic Dry Index measures the cost for shipping goods such as iron ore and grains.
The trading volume of dry freight derivatives, a market estimated to be worth about $200 billion in 2007, grew as those needing ships attempted to contain their risks and investment banks and hedge funds looked to make profits from speculating on price movements.
At the close of the 2007 financial year, the number of traded lots on dry FFAs doubled the derived physical product.