Hedging equity and equity futures Hedge (finance)

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a contract difference (cfd) two-way hedge or swap contract allows seller , purchaser fix price of volatile commodity. consider deal between electricity producer , electricity retailer, both of whom trade through electricity market pool. if producer , retailer agree strike price of $50 per mwh, 1 mwh in trading period, , if actual pool price $70, producer gets $70 pool has rebate $20 (the difference between strike price , pool price) retailer.


conversely, retailer pays difference producer if pool price lower agreed upon contractual strike price. in effect, pool volatility nullified , parties pay , receive $50 per mwh. however, party pays difference out of money because without hedge have received benefit of pool price.







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