Weather Future
Definition of 'Weather Future'A type of weather derivative that obligates the buyer to purchase the value of the underlying weather index - measured in heating degree days (HDD) or cooling degree days (CDD) - at a future date. The settlement price of the underlying weather index is equal to the value of the relevant month's HDD/CDD multiplied by $20. Weather futures enable businesses to protect themselves against losses caused by unexpected shifts in weather conditions. |
|
Investopedia explains 'Weather Future'The popularity of weather futures is growing rapidly and becoming a more common method for energy companies to hedge against a change in demand due to changes in temperature. For example, if the month of October is warmer than expected, customers will not use as much heat. This will cause a loss for the energy company. If, however, the energy company has sold a weather future for the month of October, the energy company will receive (because it's obliged to sell) the value of October's HDD, providing compensation for its losses. |
Related Definitions
Articles Of Interest
-
Introduction To Weather Derivatives
Learn about a financial instrument that makes temperature a tradable commodity. -
Futures Fundamentals
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. -
6 Asset Allocation Strategies That Work
Your portfolio's asset mix is a key factor in whether it's profitable. Find out how to get this delicate balance right. -
Nobel Winners Are Economic Prizes
Before you try to profit from their theories, you should learn about the creators themselves. -
Investing During Uncertainty
The inability to forecast future events can turn the markets upside down. Find out how to stay right-side up. -
An Overview Of Commodities Trading
Commodities markets, both historically and in modern times, have had tremendous economic impact on nations and people. Investing in commodities can quickly degenerate into gambling or speculation ... -
The Copper King: An Empire Built On Manipulation
Find out how Yasuo Hamanaka's actions in the copper market forever changed the rules for commodity traders. -
An Introduction To CFDs
The benefits of these securities abound, but high leverage also magnifies potential losses. -
Breaking Down Financial Securities Licenses
Find out which exam you need to begin your career as an investment professional. -
Using Index Futures To Predict The Future
Want to know whether the stock market will open up or down? Check out the index futures.
Free Annual Reports