Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Energy derivatives definition

What does Energy derivatives mean? Energy derivatives are contracts whose value tracks the price of an energy commodity—typically crude oil, refined products, natural gas or electricity. In practice they are used to hedge or obtain exposure to price, volume or basis risk, and are traded over-the-counter (otc) or on exchanges. Common forms are futures, options, swaps and forwards, with cash or physical settlement. Energy derivatives is a market term, not a defined statutory label. In the UK and Ireland these contracts usually fall within commodity derivatives and are treated as financial instruments under MiFID II (UK onshored/EU), triggering authorisation and conduct requirements. Depending...

Energy derivatives: products, participants and EU-UK regulatory frameworks (EMIR, MiFID II/MiFIR, MAR, REMIT) and OTC documentation (ISDA)

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Practice notes

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This Practice Note sets out an overview of how derivatives are applied within the energy markets and considers divergence between EU and UK regulation of energy derivatives.

What are energy derivatives?

Energy derivatives track the price of an underlying energy commodity, including oil, gas or electricity. They can be traded over the counter (OTC) or on an exchange (exchange traded derivatives or ETDs). Market participants include:

brokers
financial institutions
investment funds
speculators
direct energy users

Common types of energy derivatives

Forwards/futures

A forward in the energy sector is an OTC derivative providing for the future delivery of an energy product, with the price fixed on the date the agreement is concluded. A futures contract is broadly comparable but is traded on an exchange rather than negotiated privately with a market counterparty. For further detail on these instruments, see Practice Note: Types of derivatives.

Swaps and contracts for differences

An energy swap is typically cash settled—they are commonly entered into with financial institutions...

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Web page updated on 21/05/2026

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