Investopedia

Weather Future

Filed Under » ,
Dictionary Says

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 Says

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.

Articles Of Interest

  1. Introduction To Weather Derivatives

    Learn about a financial instrument that makes temperature a tradable commodity.
  2. 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.
  3. Uncovering Oil And Gas Futures

    Find out how to stay on top of data reports that could cause volatility in oil and gas markets.
  4. Trading Is Timing

    Learn how to make gains even if you don't get in at the right time.
  5. Leading Economic Indicators Predict Market Trends

    Leading indicators help investors to predict and react to where the market is headed.
  6. Exploring Non-Dollar Currencies For Forex Trading

    Learn how investments in foreign currencies can diversify your portfolio.
  7. Candlestick Charting: What Is It?

    Discover the components and basic patterns of this ancient technical analysis technique.
  8. Financial Solutions For Young Women

    Break through the stereotypes and find out how to manage your life to meet your needs.
  9. Open Interest

    Learn more about this commonly used term found in a stock's option chain.
  10. Derivatives 101

    Learn how to use this type of investment as an alternative way to participate in the market.
comments powered by Disqus
Marketplace
Hot Definitions
  1. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.
  2. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.
  3. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.
  4. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.
  5. Angelina Jolie Stock Index

    An index made up of a selection of stocks from companies associated with actress Angela Jolie.
  6. Consequential Loss

    The amount of loss incurred as a result of being unable to use business property or equipment.
Trading Center