commodity swaps

A commodity swap is a financial agreement where two parties exchange cash flows based on the price of a commodity, like oil or gold, over a specified period. Typically, one party agrees to pay a fixed price, while the other pays a variable market price. This helps both manage price risk: producers lock in prices for their products, and buyers secure cost certainty. Essentially, it’s a tool used to hedge against fluctuating commodity prices, providing more predictable costs and revenues without physically trading the actual commodity.