A base point for pricing commodities. When a price is indexed, it is quoted in reference to that base point. Most world currencies are indexed relative to the US dollar or the price of gold, so the value of a unit of currency is expressed as a percentage of the US dollar or an ounce of gold.

Price indexing is applied in the energy industry relative to the type of energy supplied. Natural gas prices in the US are typically quoted relative to the current market price at the Henry Hub, a well-known trading point for gas. Index gas prices are quoted as so many percentage points above or below the Henry Hub. Price indexing for electricity is usually based on the spot market price for energy to be delivered at 1:00pm on the following day.

Indexing of energy prices allows buyers and sellers to arrange energy contracts without prior knowledge of the price at the time the contract will be fulfilled. This offers insurance to buyers that the price they pay will be fair in relation to the market price at the time of delivery, and guarantees that the seller receives a price that represents the actual value of the energy at that time. Both buyer and seller assume certain risks of prices rising or falling before the actual contract is fulfilled.

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