Will high-frequency trading (oft-termed "HFT" amongst journalistic heavies) take the commodities world by storm, is a question which some would say has already been answered.
Whilst HFT may have gripped the exchange traded commodities gladiatorial arena (and earned permanent recognition in financial literature such as The Quants), one area where it has not penetrated is the specialized realm of OTC commodities derivatives contracts.
The OTC arena is one of specialized vocabulary and distinctive concepts, shrouded in mystical terms presently unbeknownst to the HFT community.
To start, we will look at the contracts known as take-or-pay, variable base-load factor or swing contracts, commonplace in the natural gas market. However, these are relatively unknown outside of commodities (specifically natural gas and soon-to-be electricity markets). Just ask a money market trader what a swing contract is and chances you will get an answer that does not correlate with the natural gas definition. Mention "variable base-load" and confusion and annoyance will undoubtedly result, or puzzled nods of approbation as images of music systems are conjured up.
The simple explanation of a swing contract is one in which one of two parties is guaranteed a supply of a particular commodity at fixed times in the futures for a certain price, called the strike, K. The holder is thus protected from fluctuations in the commodity during the period until expiration. The holder gets complete price protection if K is fixed at the start, and part-protection if K depends on spot price at the start of each period - making it like a strip of forward contracts.
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