FREE Guide - 5 Chart Patterns You Need to Know!

Commodity Swap

What does Commodity Swap mean?

A swap where there is an exchange of cash flows for an underlying commodity. In this contract a buyer or seller enters into a contract in which they sell or buy that commodity at a future date at a predetermined price. This protects the buyer or seller from any price movement which might happen in the future. The nature and objective of a Commodity swap is similar to a floating and fixed interest rate swap.

Futures Knowledge Explains Commodity Swap

For example commodity swap is widely used by oil producers. Oil is a very volatile commodity. If an oil exploration company knows that it would be able to produce X amount of oil in next few months from its oil field, then in order to lock in the revenue it enters into a commodity swap contract in which it would sell oil in coming months at a fixed price. This brings predictability in its future cash flow.

Get Your FREE Technical Analysis Guide!
Timing is everything, and with this guide, you'll learn how technical analysis can help find the right time to enter and exit your futures trades. Nearly 30 explanations and examples of the most popular technical analysis tools are all in this one handy guide. It's like having a futures trading mentor at your side!