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Definition of 'Energy Derivatives'
A derivative instrument in which the underlying asset is based on energy products including oil, natural gas and electricity, which trade either on an exchange or over-the-counter. Energy derivatives can be options, futures or swap agreements, among others. The value of a derivative will vary based on the changes of the price of the underlying energy product.
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Investopedia explains 'Energy Derivatives'
Energy derivatives can be used for both speculation and hedging 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. Speculators can use derivatives to profit from the changes in the underlying price and can amplify those profits through the use of leverage.
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They've contributed to some major market scandals, but these instruments aren't all bad.
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The energy market influences every aspect of our lives, and these four options are its driving force.
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For those who are new to futures but want a solid understanding of them, this tutorial explains what futures contracts are, how they work and why investors use them.
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Find out how to stay on top of data reports that could cause volatility in these markets.
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Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices.
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