Detailed Glossary


A Detailed Glossary of Energy Trading terms for registered users



Trading

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nick

Speculative Trading

by Nick Henfrey - Monday, 13 April 2015, 6:00 PM
 

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

nick

Spot

by Nick Henfrey - Monday, 13 April 2015, 6:01 PM
 

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

nick

Spread

by Nick Henfrey - Wednesday, 3 September 2014, 5:20 PM
 

A spread is a difference in price, or value, of two similar but different underliers

An Energy Spread trade s a type of trade between two floating prices on similar but not identical energy underliers

Detail

Spread trades are usually financially settled

Different types of Energy Spread are classified by the difference in the underliers:

Many commodity spreads are associated with the cost of generating electricity, so they involve electricity as one commodity, the others may be:

  • Gas - usually called a Spark Spread
  • Coal - usually called a Dark Spread
  • Oil - usually called a Slick Spread 

Another group of commodity spreads are associated with the cost of refining, so they involve crude oil as one commodity, the others being refined products such as gasoline. These are known as crack spreads

Spread is also used to describe the difference in prices between locations, times, commodities

 

nick

Storage

by Nick Henfrey - Wednesday, 3 September 2014, 5:38 PM
 

A type of commodity, which although it may be applied to any physical commodity, usually describes the ability to store natural gas in its gaseous state

Storage facilities usually consist of natural structures (depleted gas fields for example) that are attached to the gas pipeline network

Details

Storage may be bought from the Storage operators in auctions or traded

Storage allows the option to inject gas into storage, or release gas from storage

The commercial use of storage is generally to allow gas to be transferred into Storage (injected) in Summer months when the prices are low, and released (withdrawn) in the peak Winter months when gas prices are high

Storage behaves somewhat like an option on a physically settled time spread

nick

Trade

by Nick Henfrey - Wednesday, 29 August 2012, 9:25 AM
 

A trade is a legally binding contract between two parties

A physically settled trade requires one party to deliver one or more commodities to the other party at a time and location specified in the trade terms, in return for one or more cash payments

A financially settled trade requires both parties to agree the value of one or more underliers, and make one or more cash payments dependent on those values

In general, trades have the following dimensional attributes

Commodity

Delivery location

Delivery period

Counterparty

Broker

Trades also have the following non-dimensional attributes

Price

Volume

See also Execution

nick

Virtual

by Nick Henfrey - Monday, 13 April 2015, 7:30 AM
 

Something that behaves like something else but is not really that thing

Detail

We've all heard of virtual reality - it appears (or tries to appear) real but is not, but it does have many of the characteristics of real

So what does that mean for us?

Well let's take a real(!) example

Virtual Storage - Storage allows organizations to inject gas at one point in time and withdraw it later

An organization (the seller) may sell another organization (the buyer) virtual storage

the buyer of the product sells gas at no cost to the seller

at some point later in time the buyer of the product requests the seller of the product to sell the gas back at no cost

the seller tracks the level of virtual gas, and tracks this against the virtual capacity of the storage product sold

nick

Volume

by Nick Henfrey - Monday, 13 April 2015, 6:10 PM
 

Volume is the measure of how much of something is involved in a trade

Volume = Quantity (but the term Volume is nearly always used in preference)

Hence in energy trading volume may have dimensions of energy, mass, weight or volume

Detail

Volume is one of the important attributes of a trade

Volume may be specified:

As a total for the entire trade

By day, month or some other period for the duration of the trade

Volume has units of quantity according to the commodity:

Mass (often incorrectly called weight) - often used for coal, oil and other non-gaseous commodities

e.g. metric tonne (T), kilogrammes (kg)

Volume - sometimes used for gaseous and liquid commodities

millions cubic feet (mcf), barrels (bbl), gallons

Energy - may be used for any commodity

e.g. therms, Megawatt hours (MWh)

For gas and electricity trades it is generally more convenient to trade in quantities of energy

Other energy commodities are usually measured in volumes of mass or volume since this is more practical to measure at delivery

Volume traded will directly affect the traded position of that commodity

Volume may be constant over the duration of the trade, or may vary over the different delivery periods: the delivery volumes are defined in the Schedule of the trade

 

nick

Withdrawal

by Nick Henfrey - Wednesday, 3 September 2014, 5:31 PM
 

Term used to describe transferring natural gas from a storage facility into a transmission network

Detail

Withdrawn volumes are nominated in the same way as other physical gas movements

See also Storage for more details


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