Weather derivatives market depth

Discussion in 'Trading' started by kxvid, Dec 8, 2011.

  1. kxvid


    I am looking for data on weather derivatives liquidity. Anybody trade them on the CME? The spreads seem wide, but there are BIDs and OFFERs. It appears that valuation is very difficult and that is a roadblock preventing widespread adoption. If anybody could post a chart that would be super helpful.

    Weather temperature futures quotes (apparently the most liquid weather derivative) but no market depth:
  2. kxvid


    Nobody? Anybody successful in getting globex charts for these exotic derivatives? If so what software package and data vendor.
  3. The liquidity and spreads are terrible. Stay away from the weather futures market unless you want your ass handed to you slowly and painfully. Only an idiot would try to trade them.

    for this reason, almost every futures broker in the business will NOT offer access to those instruments for trading.
  4. They're primarily used by electricity companies who can afford to cross the spread out of hedging requirements. It's not a retailers game.
  5. kxvid


    Are you referring to block trades? Can you please explain "cross the spread out of hedging requirements"?
  6. Power companies use the weather derivatives markets to hedge their obligations to produce electricity. Crossing the spread meaning they must lift the offer or hit the bid if they would any reliable amount of liquidity. The cost of doing so is continually built into their operating costs.