Practical applications and use cases

1. Hedging Against Price Volatility

Periodic and Expiring futures are powerful tools for businesses to protect themselves against price fluctuations in commodities and energy markets. Companies like airlines, utility providers, and energy producers can lock in prices to ensure cost stability. Example: An airline can hedge its jet fuel costs by using ECSFs to fix the price of fuel for an upcoming period, protecting itself from sudden price surges caused by geopolitical or supply chain disruptions.

2. Speculative Trading

Traders can leverage PCSFs to profit from short-term price movements without the complexities of physical delivery. The periodic settlement (e.g., every 8 hours) makes these contracts ideal for dynamic trading strategies like scalping or day trading. Example: A trader expects crude oil prices to rise due to a supply cut announcement. They take a long position in WTX PCSFs, earning a profit as prices increase.

3. Portfolio Diversification

Institutional investors and hedge funds can diversify their portfolios by including energy and commodity futures, reducing reliance on traditional asset classes like equities and bonds. ECSFs linked to renewable energy-related assets provide opportunities to align investments with the global energy transition. Example: A hedge fund adds ECSFs tied to lithium prices to its portfolio to hedge exposure to battery production costs while diversifying away from traditional equity markets.