Commodity Swap

Master Complex Financial Derivative Contracts

Through Interactive AI Learning



A commodity swap is a financial derivative contract in which two parties agree to exchange cash flows based on the price of a specific commodity over a set period. Typically, one party agrees to pay a fixed price for the commodity, while the other pays a floating price linked to the market rate, such as an index or spot price. This arrangement helps parties hedge against price volatility in commodities like oil, natural gas, or metals. For example, a producer might use a commodity swap to lock in a stable revenue stream, while a consumer might use it to ensure predictable costs. The swap is settled financially rather than involving the physical exchange of the commodity.


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