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Detailed Glossary
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Linear trade | ||
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A trade with no optionality Detail Why? The linearity refers to the delta - that is the variation of the value of the trade with the main underlier Trades with no optionality have a value that is directly proportional to the value of the underlier - if we plot the value against the value of the underlier it will be a straight line - hence linear trade Trades with optionality do not have a linear relationship between value and underlier. As the value of the underlier becomes less and less favourable the value of the trade becomes nearer and nearer to zero Unsurprisingly these trades are known as non-linear | ||
Give Up | ||
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A give up is an OTC trade - usually a forward - given up to an Exchange for clearing Detail A give up may start life as an OTC bilateral trade which, by mutual agreement, is given up to an Exchange to take advantage of clearing The give up may also be: a brokered OTC Forward that is mutually given up for clearing traded as an Exchange Derivative on a Broker platform, and automatically be given up for clearing Giving up an OTC trade for clearing combines the flexibility of trading bilaterally or through a broker, with the risk-free credit benefits of cleared trades | ||
Injection | ||
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Term used to describe transferring natural gas from a transmission network into a storage facility Detail Injection volumes are nominated in the same way as other physical gas movements Injecting gas into a storage facility requires the organization to have available storage capacity See also Storage for more details | ||
Withdrawal | ||
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Clearing House | ||
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An organization that manages the clearing for an Exchange Detail Every Exchange appoints a Clearing House to manage the clearing of trades executed on the Exchange Bigger Exchanges may own their own Clearing House - others may appoint a large Clearing House to act for them For most settlement and financial purposes the Clearing House (or a Clearing Broker acting for us) is the settlement and financial counterparty to futures, swaps and spot trades executed on the Exchange | ||
Clearing Broker | ||
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An organization that acts as an intermediary wishing to trade on an Exchange Detail A Clearing Broker acts for an organization in two capacities: Intermediary between a trading organization and the Exchange's Clearing House - trades are executed directly with the Exchange itself Intermediary between a trading organization and an Exchange to allow trading with that Exchange without being a member | ||
Megawatt | ||
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A Megawatt is a measure of energy per unit time
Abbreviation is MW Not to be confused with MWh Detail In energy trading we usually refer to electricity as power In physics power is energy per unit time
Gas and power trades are often specified in Megawatts because they have a continuous flow rate However energy trades are priced in terms of energy (e.g. €45.3/MWh) so we need to be able to calculate the number of MWh of the trade or delivery period This is easy if we use the equation: 1 MWh = 1 MW flowing for one hour and simply remember this Megawatt.hours = Megawatts x hours or MWh = MW x hours Just like the speed of a car: you can't meaningfully add two values in Megawatts at different times - what does it mean to add two speeds together at different points on the Motorway? If I drive 60 mph for 10 minutes, then 72 mph for the next 5 minutes, does the number 132 mph mean anything? (No!) If I flow 10 MW one day and 20 MW the next day, the value 30 MW has no meaning you can meaningfully add two values in Megawatt hours at different times If I drive 10 miles in the first ten minutes, then 6 miles in the next five minutes, then I have driven 16 miles in total If I flow 240 MWh one day and 480 MWh the next day, then I have flowed 720 MWh over the two days you can't normally price something in Megawatts - a toll road makes you pay per mile, it doesn't matter how fast you went For clarity: 1 Watt = 1 joule per second; 1 W = 1 j/s 1 kilowatt = 1,000 Watts; 1 kW = 1,000 W 1 Megawatt = 1,000 kilowatts; 1 MW = 1,000 kW 1 Gigawatt = 1,000 Megawatts; 1 GW = 1,000 MW 1 Terawatt = 1,000 Gigawatts; 1 TW = 1,000 GW | ||
Megawatt hour | ||
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A measure of energy - abbreviated to MWh Equivalent to one Megawatt of power flowing for one hour Detail In physics Power = Energy per unit time, e.g. joules per second this can be thought of as an energy flow rate it follows that Energy = Power * time think of energy (MWh) as the equivalent of distance (miles or kilometres), and power (MW) as the equivalent of speed (mph or kph) Electricity (confusingly also normally called power) and gas trades are often described in terms of a rate of energy, e.g. Megawatts, or therms per hour However energy trades are priced in terms of energy (e.g. €45.3/MWh) so we need to be able to calculate the number of MWh of the trade or delivery period This is easy if we use the equation: 1 MWh = 1 MW flowing for one hour and simply remember this Megawatt.hours = Megawatts x hours or MWh = MW x hours Just like the speed of a car: you can't meaningfully add two values in Megawatts at different times - what does it mean to add two speeds together at different points on the Motorway? If I drive 60 mph for 10 minutes, then 72 mph for the next 5 minutes, does the number 132 mph mean anything? (No!) If I flow 10 MW one day and 20 MW the next day, the value 30 MW has no meaning you can meaningfully add two values in Megawatt hours at different times If I drive 10 miles in the first ten minutes, then 6 miles in the next five minutes, then I have driven 16 miles in total If I flow 240 MWh one day and 480 MWh the next day, then I have flowed 720 MWh over the two days you can't normally price something in Megawatts - a toll road makes you pay per mile, it doesn't matter how fast you went | ||
Upstream | ||
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A term principally used in oil and gas context - covering the search for new reserves, exploratory activities, construction of new extraction facilities, and the running of those facilities Detail The gas and oil industries are generally divided into three main sectors - roughly following the life cycle of the commodity Upstream activities follow a sequence:
See also midstream and downstream | ||
P&L atttribution | ||
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Let's say we added up the P&L of all our trades today, and then did the same tomorrow - the two values would probably be different - but why? Some reasons:
P&L attribution calculates the change in P&L for each of the above individually - and any other factors - so that the effect of each cause may be understood Detail The exact calculation is rather complex, for example if we want to know the effect of new trades, do we value them against yesterday's curve price or today's? If we use today's then in effect we have partially attributed some P&L change to the new curve price In general the P&L of each trade, or a netted exposure across a portfolio is is recalculated individually for each change that might affect the p&l (forward curve, fx rates etc), keeping each other effect constant Because each change is taken in isolation the the sum of all P&L attribution detail does not add up to the overall change in P&L... P&L attribution is often called P&L explained or P&L explainer | ||