Exploring The Effect of Physical Delivery verses Cash Settled Futures Contracts with the Prospective of Obligatory Delivery in Islamic Contract of Sales

Adil, Farzan; Siddiqui, Danish Ahmed

doi:10.2139/ssrn.3400718

Cited by 1 publication

(1 citation statement)

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“…Futures trading methods usually include physical delivery and cash settlement [7]. Traders using physical delivery are usually on the short side; their role is mostly that of commodity companies with spot inventories that can sell the spot commodities they own at a determined price and realize profits; traders using cash settlement are usually on the long side and are considered speculators who push up futures prices through excess position orders over deliverable commodities to realize speculative profits [8]. In the early days of traditional electricity futures trading with physical delivery, the mismatch between futures trading volume and physical delivery volume could not be improved due to chronically low power factors, and the North American electricity Energies 2022, 15, 5138 2 of 14 market converted electricity futures contracts into pure cash settlement in the early 20th century [9].…”

Section: Introductionmentioning

confidence: 99%

A Margin Design Method Based on the SPAN in Electricity Futures Market Considering the Risk of Power Factor

2022

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On-grid integration of renewable energy, also called “green power”, is attracting more and more attention nowadays. Green power futures can be effective in increasing returns to suppliers and increasing market liquidity. However, compared to traditional futures, green power feed-in tariffs may be subject to integrity problems due to lower power factors; therefore, existing margin calculation methods for the futures market are no longer applicable. A SPAN-based margin calculation method that considers the power factor risk is proposed in this paper. The method provides the classification policies of the green power futures, based on the historical power factors of green power suppliers, and allows the margin amount to be adjusted as per the classification. To verify the effectiveness of the proposed method, empirical validation is presented by applying actual transaction data. Results prove that the proposed method can reduce the margin amount while covering the risk effectively.

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Section: Introductionmentioning

confidence: 99%