I have been doing some surface-scratching reading about energy market derivatives. In particular, electricity market derivatives. Nowadays, when one trades futures on an index such as the S&P 500, at maturity they are cash settled, and rarely does one actually receive a "delivery" of holdings in the index.

However for commodities, delivery is much more common. Such as oil, wheat, copper, gold etc. I understand how an oil futures contract might be delivered, simply, barrels would be shipped to your location. However, electricity market derivatives are different. I have tried searching, finding this to be closest answer, but it didn't specifically answer how they are delivered.

Would such a question be considered as "off topic"?

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    $\begingroup$ I think it's a fair question. $\endgroup$ – Bob Jansen Apr 13 at 17:55
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    $\begingroup$ Personally I think its borderline. But, my general approach with borderline questions is to allow them, rather than stifle a community I think a more eclectic mix of topics is positive for a reader accumulation. $\endgroup$ – Attack68 Apr 14 at 20:32
  • $\begingroup$ I can see why you think it's borderline, I too thought so and that's why I was hestitant and asked here first. But I couldn't think of any other forum on this site where this would have been a suitable question. $\endgroup$ – Hamish Gibson Apr 14 at 20:35

I think this question How does the underlying get delivered for electricity market derivatives? is very reasonable.

It applies not only to electricity derivatives, but to other commodities, such as petroleum (interesting recent paper https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3781158 ) where WTI are settled physically, but Brent are cash-settled.

Many years ago I worked on Australian electricity futures. They are cash settled. https://www2.asx.com.au/markets/trade-our-derivatives-market/overview/energy-derivatives/electricity

I googled and can't find any physically settled electricity futures.

CMD Uranium futures https://www.cmegroup.com/trading/metals/other/uranium_contract_specifications.html are also cash settled.

  • $\begingroup$ Thank you for your answer. I have seen some interesting comments on my question from Bob Jansen and noob2, I'll wait and see if others have any input on the matter. $\endgroup$ – Hamish Gibson Apr 14 at 16:52

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