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?Swaps? are exchanges of payments between two parties. They are strictly financial. No physical exchange of the commodity takes place. One party to the transaction agrees to pay a current market price (?fixed?) while the other agrees to pay a price in the future (?floating?).
Basis is the difference in price difference between a forward (futures) market and a cash (spot) market. In the natural gas markets the primary type of basis risk is locational basis risk. A basis swap is contract which provides the buyer or seller of the swap to hedge their exposure to basis risk.
The most common way that traders take a position on natural gas is with a futures contract, such as the Henry Hub natural gas futures contract on the CME. With a futures contract, traders agree to the delivery of a certain amount of natural gas at a set date in the future for an agreed-upon price.
?Swapping? of natural gas is an arrangement whereby a party, hereinafter referred to as the 'first party' supplies gas to a 'second party', at a location sought for by the second party, ?in exchange for? the second party agreeing to indemnify the first party from any additional financial liability, on account of ...
Fixed Price This will give you certainty that your price will not change during the term of the agreement; however, if market prices fall, you may have to wait until your contract expires to get a lower price. Unless you act prior to the expiration date in your contract, your rate may change to a monthly variable rate.
Swing Swap means a contract which entitles the buyer of the contract to pay a fixed price for natural gas and the seller to pay the gas daily average at a defined location for a defined period of time.
A swap is an OTC contract in which two counterparties undertake to exchange future payments, whose calculation rules and frequency are defined in the contract.