Energy Futures

Energy futures are derivative contracts with energy products such as crude oil, gasoline, and electricity as the underlying asset. These contracts trade on various exchanges and are available in various contract sizes including short-term leases, full-year leases, and quarterly leases.

More About Energy Futures

Continue reading to learn more about:

How do energy derivatives work?
What are energy futures?
Trading in Over-the-Counter Energy
The main types of energy futures
Energy futures contracts

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How do energy derivatives work?

Markets for energy futures, derivatives and other products allow you to leverage your interests in the production and distribution of energy. Energy futures contracts allow you to manage your exposure to price volatility of a commodity without actually having to own the commodity itself. Derivatives allow you to obtain market exposure or manage market risks while taking a very small position in an underlying asset.


What are energy futures?

Energy futures exist to allow the price of energy to be calculated over a specific period of time. These contracts also allow client and non-client (i.e. non-commodity trader) hedgers to manage or lock in risk associated with physical products.

In other words, an energy future gives investors the right to buy or sell a specific amount of a commodity at a pre-determined price on a certain date. Energy futures often trade on centralized exchanges such as the Intercontinental Exchange (ICE), NYMEX and COMEX.


Trading in Over-the-Counter Energy

• Energy trading is the idea that increased competition and greater transparency benefit consumers and markets alike. Energy trading levels the playing field for companies and gives them access to the same tools their larger competitors use.
• By trading energy, companies can eliminate the big ups and downs in their energy costs, gain exposure to new products and technologies, reap opportunities that arise from changes in market conditions, and position themselves to face global trends.
  • The main types of energy futures

    There are two types of energy futures: energy only, and energy-related. An energy-only future is a contract to trade the difference in price between the underlying asset and a pre-defined index, usually from the beginning to the end of a calendar year. An energy-related future on the other hand is a contract that does not trade any single asset that is related to that commodity, but is based on a broad index or basket of commodities.
  • Energy futures contracts

    At the heart of any forward-thinking energy trading business, there should be a sophisticated trading platform that is supported by an experienced team of experts. This is the Energy Futures contract. A futures contract is one in which two parties agree to buy and sell a commodity for an agreed price on an agreed future date. This is usually a farmer and a consumer who enter into such contracts with respect to a commodity. Such agreements are legally binding and the settlement can be done in different ways, such as physical delivery or payment of cash.