- Financial tools can be used by LDC's, marketers, and others to develop programs for themselves and users who can't, or don't want to, be active in these markets. Reliance on financial tools, however, does not lead to automatic success. In fact, even though trades may achieve price stability, the risk of a poor deal should be recognized. The figure shows considerable price variation in trading for December 1998 deliveries. Thus, early use of this alternative should be pursued with caution.
- Futures prices are not good predictors. They serve to balance buyer and seller volumes in trading of futures transactions. Prices for these trades tend to be highly erratic, so considerable expertise in market outlook as well as structuring financial deals is necessary.
- Price stability and cost minimization are conflicting objectives. Attempts at price stability, such as price hedging with futures trades or financial options, incur costs.
- Futures trading includes numerous financial tools that can be used to manage price volatility. These of course are likely to be used directly only by large players in the market - those who can afford the staff and resources to assess the various ways of using the financial markets.
- Greater use of similar financial tools are expected by participants in electric power markets in their attempts to manage increasing volatility due to restructuring of that industry.
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