What does Energy Derivatives mean?
Derivative instruments whose value is based on the changes of the price of the underlying energy products such as crude oil, natural gas and electricity. Energy derivatives can be options, futures, swap agreements or other instruments.
Futures Knowledge Explains Energy Derivatives
Energy derivatives can be used for both hedging and speculation purposes. Companies, whether they sell or just use energy, can buy or sell energy derivatives to hedge against fluctuations in the movement of underlying energy prices. Investors or speculators trade in derivatives to capture gains that come from price fluctuations in the underlying asset. With leverage, the outcome, profit or loss, can be significantly high.