Commodity swaps (fixed-floating, commodity-for-interest) The fixed-floating swap consists of a fixed and a variable component. The variable component is based on the market price of an underlying or an agreed commodity index, while the fixed component is specified in the contract.

Normally, the raw material manufacturer/supplier receives the fixed payments to hedge against possible market volatility and pays a variable amount. In this way, the commodity buyer secures a fixed (purchase) price over a certain period of time, while the commodity producer/supplier has hedged against possible price fluctuations. In a commodity-for-interest swap, one of the contracting parties pays interest on the market price of an underlying and the other pays either an agreed fixed or variable interest rate. A notional amount of money is required on which the interest payments are based, as well as a fixed term and payment intervals. With the help of this interest rate swap, the commodity producer/supplier secures a hedge against an unfavourable return in the event of a market price reduction.