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Non-Deliverable Swap
A Non-Deliverable Swap (NDS) is a derivative contract settled in cash rather than physical delivery. It allows participants to hedge or speculate without taking possession of the underlying commodity.
In oil and energy markets, NDS contracts are often used for cross-border transactions where physical delivery is impractical. Settlement is based on a reference price or benchmark.
These swaps reduce logistics costs and credit exposure while providing risk management for price fluctuations. NDS contracts are especially common in emerging markets.
Traders must carefully manage counterparty risk and understand settlement conventions when using NDS instruments.