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Mastering the Commodities Markets by Francesca Taylor

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Exchange Trading

As well as trading physical gas, there is a paper market for financial trading, in which the buyer and seller never take physical delivery of the gas. There are two possible motives behind trading in financial natural gas markets: hedging and speculation. The volatility of the price of gas requires the use of financial derivatives to hedge against the risk of price movement. If a trader plans to sell gas on the prompt for the next month, and is worried about falling prices, a variety of financial instruments can be used to hedge against this. Paper trades are also popular for those who wish to speculate about price movements. Great profits might be made if the expectations of a speculator prove correct, but losses can be incurred ...

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