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Power | ||
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In Energy Trading terms Power is almost always synonymous with Electricity In physics terms power is a measure of the rate of energy conversion per unit time Detail In SI terms energy is measured in Joules One watt = one Joule per second 1 kilowatt (kW) = 1,000 joules per second Since power is energy per unit time (energy divided by time) it follows that energy is power multiplied by time Frequently energy is measured in these terms: 1 kWh = 1 kilowatt for an hour = 3,600 * 1,000 joules = 3,600,000 joules | ||
Product | ||
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Prompt | ||
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Quark spread | ||
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Realization | ||
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The p&l of trades (and cash flows) is described as:
Detail Most trades involve delivery at some point in the future Because the value of the commodity to be delivered is not known before the delivery, the value needs to be estimated or calculated from market data. For forwards and futures and other linear trade types the value may be estimated by a simple mark to market calculation For options and other non-linear trades the value may be calculated using the Black 76 method (derived from the earlier Black-Scholes method) We say the trade's value (its p&l) is unrealized because it is not yet known for certain, and is therefore a cause of market risk Once delivery has taken place, we know (or don't care about) the delivered value, the value of he trade is known and no longer varies. In effect the p&l is locked in, there is no more market risk associated with this trade and the p&l is said to be realized The p&l of a trade (or cash flow) moves from unrealized to realized when one or more of the following conditions has been met
Realization is the set of business rules that defines when p&l moves from unrealized to realized based on:
Realization is subjective: different organizations may have different business rules to determine realization | ||
Scheduling | ||
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Often used as a term for the Operational activities involved in gas and power Detail Short term position needs to be nominated or notified to the respective system and market operators:
This set of activities is often collectively referred to as Scheduling The schedule of a trade describes the delivery profile (that will need to be nominated) | ||
Settlement | ||
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The Business Process or Capability covering the payments relating to trading activities. It includes agreeing payments, making them, and ensuring that payments are received at the correct times Detail Settlement includes: We also referred to the concept of financial and physical settlement of trades
We need to be careful to recognize the legal definition of settlement of a physical trade:
Most other parts of energy trading businesses identify the term settlement with cash settlement (or payment) | ||
Shape | ||
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Shape is a term, mainly used in Power Trading to describe a non-continuous delivery over a delivery period For example a UK power trade may have a delivery period of a month and have peak shape, which specifies that the power will be delivered over a time period of 07:00 - 23:00 each day of the Month Detail Typical shapes include
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Speculative Trading | ||
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Speculative trading, also known as proprietary or spec. trading, is the trading of commodities with the intent of making a profit with no intent to make or take delivery of those commodities Detail Spec. traders take forward positions, either short or long with the view to closing out those positions at a later date, prior to delivery Closing out the open position involves trading to flatten the net position, eventually (but before delivery) to zero | ||
Spot | ||
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A spot trade in general refers to a trade with immediate delivery. In energy trading terms it usually refers to a trade with delivery on the day it is executed (within day) or for the following day (day ahead) Detail There is usually high volume trading in spots, particularly for power and gas, as speculative traders try and close out their positions as delivery times approach, and asset-backed traders try to balance, and financially optimize their positions. A large proportion of spots are traded on Exchanges and through Brokers Spot trades are settled physically, and even if executed on an Exchange are often settled by invoice and payment within a day or two of delivery | ||