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You don't have to have a large percentage of the participants able to take physical delivery, just a small percentage. For every contract there are plenty of people who will take it in to inventory or sell out of it if the spread between the spot and future is wide enough. So there's a band that's created. For example, if Henry Hub Gas is 2.9 and the ...


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Although, I think this question is a bit off-topic for a Quant S.E., I'll try to answer it with my background sitting at a commodities desk at a bank. Since most of the future contracts are never settled physically (therefore, no actual trades occour), why would the rest (actual buyers and sellers) even agree to participate in this speculative ...


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One aspect you seem not to have so far considered is the ability to trade OTC spread options. A gas-fired power plant is naturally exposed to the "spark spread" (the difference between the market price of a unit of power and the cost of the gas required to produce that power). These are traded OTC between utilities, banks and standalone energy traders and ...



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