The financial market is a commercial centre where price securing contracts are traded.

In the following example, a retailer and a supplier have entered into a futures contract at a specific volume and a hedge price. The contract applies to one specific day, week, month, quarter or year. Since this is purely a financial contract, the power will have to be physically traded in the spot market before the retailer and supplier settles the contract. Both parties involved in the contract have taken out a mutual insurance.

Supposing that the average system price for the period in question is higher than the hedging price, the wholesale market is obviously disadvantageous for the retailer. However in this situation, the supplier will compensate the retailer by paying him the difference between the average system price for the period in question and the hedging price multiplied with the volume.

Supposing instead that the average system price for the period in question is lower than the hedging price. A low price on the wholesale market is obviously disadvantageous for the supplier. In this situation, the retailer will compensate the supplier by paying him the difference between the average system price for the period in question and the hedging price multiplied with the volume.

The contract is therefore settled by comparing the average system price for the specific period with the hedge price in the contract. The difference in price is multiplied with the volume in the contract, and this amount of money is transferred between the parties. The retailer does not need to worry about the price. If it is higher than the system price, he will be compensated. If the price is lower than the system price, he will, on the contrary, have to compensate the opposite party of the futures contract. A futures contract is therefore not only a mutual insurance. It is also a mutual obligation.

The two parties involved in the futures contract do not know each other’s identity if the contract has been made via Nord Pool ASA’s financial market. All settling of accounts takes place via Nord Pool Clearing. Furthermore, Nord Pool Clearing guarantees the settling of accounts: Nord Pool Clearing enters the contract if one of the parties cannot fulfill its obligations.