Free Simple Glossary of Energy Trading terms

Like most businesses, we sell something, we deliver it, we raise an invoice, we send it to our buyer, we get paid - we hope.

The Master Agreement between us and our counterparty will specify if we raise an invoice for a specific delivery (of oil for example), or for a continuously delivered commodity (gas or power for example) over a period (usually a day, week or month)

For much more information please refer to the Detailed Glossary

Netting is the aggregating and offsetting of multiple cash flows between counterparties to arrive at one, or a limited set of physical payments

For much more information please refer to the Detailed Glossary

Exposure is the sensitivity of the value of a trade, or a portfolio, to some market variable

A single trade may have Exposure to multiple market variables, and we measure the Exposure to each variable separately. 

In general there is an Exposure to each independent market variable that determines the value of the trade

For much more information please refer to the Detailed Glossary

Accounts Payable/Accounts Receivable

Anything relating to these two departments, that is:

• receiving, checking and paying invoices (Accounts Payable)
• raising, sending and chasing payment of invoices (Accounts Receivable)

Often used to refer to invoices and invoiced cash flows

For much more information please refer to the Detailed Glossary

Gamma is one of the market risk Greeks 

It measures the sensitivity of the Delta to an underlier or market value

It is of use when the value of the Delta itself varies with the value of the underlier - the Delta being the ratio of the value of the trade or portfolio to the value of an underlier or market value

For much more information please refer to the Detailed Glossary

The Greeks are a set of Market Risk measures, using Greek (or Greek-like) letters to measure sensitivities of a trade or portfolio to the set of factors that affect the value of the trade or portfolio

For much more information please refer to the Detailed Glossary

A payment that has been, or will need to be paid, on a particular date

For much more information please refer to the Detailed Glossary

A way of valuing the unrealized P&L of a simple linear Forward, Futures contract or Swap

For much more information please refer to the Detailed Glossary

The p&l of trades (and cash flows) is described as:

• Unrealized - delivery has not yet taken place, the value of the trade is determined by MtM, and the p&l varies each day with the market curve
• Realized - delivery has taken place, the value of the delivered commodity is no longer relevant, and there is no uncertainty about the value of the trade

For much more information please refer to the Detailed Glossary

The value of options varies with time, in general the uncertainty in the price of the underlier reduces as the moment of exercise approaches. Theta is the measure of how much the value of a trade, or set of trades, varies with time

For much more information please refer to the Detailed Glossary