Detailed Glossary

A Detailed Glossary of Energy Trading terms for registered users

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by Nick Henfrey - Wednesday, 18 March 2015, 5:48 PM

In Energy Trading a commodity is generally either a form of energy itself, or a physical material that may be used to easily provide energy, or a related commodity or service. The most common commodities are oil, gas, electricity (power) and coal


Standard energy commodities are:

Electricity - almost always referred to as Power in Energy Trading environments

Gas - almost always meaning Natural Gas

Sourced from underground Natural Gas fields, and increasingly from shale

Transported in gaseous form transported through pipelines, or liquid form (LNG) in pressurized vessels and purpose built ships

Used in power stations, and directly burned for heating


Probably the most heavily traded energy commodity

Sourced as Crude Oil from underground oil fields, and increasingly, shale

Mostly refined in refineries to produce fuels for heating, transportation and use in power stations

Transported mostly by ship (tankers)


Sourced from underground coal deposits

Transported by ship, barge and truck


Fuels that are grown, or made from plants

Parts of plants may be directly burned in power station

Liquid equivalents of gasoline and diesel (biofuels) may be synthesized from plants

Related commodities and services include:

Freight - for moving solid and liquid commodities

Environmental certificates, including carbon

Foreign Exchange, FX




Balance of Month

by Nick Henfrey - Thursday, 19 March 2015, 7:22 AM

A type of contract in which the delivery period is the remainder of the current month


Widely used in gas trading a Balance of Month contract (BoM) can vary from 30 days down to a few days depending on the day traded

Balance of Month contracts often have separate contract codes and settlement prices for each day of the month that they are traded

Picture of System Administrator


by System Administrator - Thursday, 19 March 2015, 7:24 AM

A set of indices used to price a trade


Generally used in the description of a floating side of a trade, such as a Floating Forward or Swap

The valuation of the floating side is based on an agreed formula based on multiple indices; the set of indices being the basket



by Nick Henfrey - Thursday, 19 March 2015, 7:24 AM

A Bid is a type of Order; a trader bids to buy a product or commodity at the Bid price


The trader bids to buy a product at a particular price

Bids are normally submitted to a Broker or an Exchange

If a bid is matched by a subsequent offer by another party, then a trade is executed

If the bid matches an already quoted offer then a match is made and a trade is executed

See also Offer




by Nick Henfrey - Thursday, 19 March 2015, 7:25 AM

A Blotter is a traditional term for a form on which trade details are recorded by a trader as trades are executed


Original blotters were pre-printed forms with a row for each trade, in which the trader wrote by hand the trade details in defined columns

Traders often use a spreadsheet to capture trade details as a form of electronic blotter

Trade details from blotters are either subsequently re-keyed into a trade record system (ETRM), or may be electronically uploaded into an ETRM

Many ETRMs have trade blotters built into them to allow trades to be recorded directly as they are executed

Deal ticket is a similar term for a pre-printed form on which trade details are recorded. Typically a blotter allows one trade per line to be recorded, whereas a deal ticket - designed for more complex trades - usually has one trade per page




by Nick Henfrey - Thursday, 19 March 2015, 7:32 AM

Capacity is a type of commodity associated with gas and power, and gives a trading organization the option to "move" gas and power through the respective networks (pipelines and grids)


Capacity may be bought in short or long-term auctions directly from the Transmission System Operators (TSOs), or may be traded bilaterally

Ownership of capacity entitles the owner to transport gas or power from one part of a network (location) to another

A trading organization does not need to buy capacity to buy and sell a commodity at a location, it does if it wants to transport the commodity to a different location 

For example capacity on the Interconnector France-Angleterre (IFA) entitles the owner to transport power from the UK grid to the French grid or vice versa

As capacity may be used to change the location of a commodity, it is somewhat similar to an option on a (physically settled) location spread and is usually valued as such




by Nick Henfrey - Thursday, 19 March 2015, 7:35 AM

Gas, oil and coal all contain carbon - when they burn the carbon is oxidized to carbon dioxide.

Carbon dioxide, as we all know, enters the atmosphere, and is generally believed to cause global warming

There are various schemes to reduce the emission of carbon dioxide, called emissions schemes, and these require major emitters of carbon dioxide to provide certificates matching their emission of carbon dioxide. These certificates may be acquired in a number of ways, and there is a market for organizations with surplus certificates to sell, and organizations who need more certificates, to buy


Naturally wherever a market exists to trade anything, speculators attempt to profit by buying and selling - in this case - carbon (in the form of certificates)



by Nick Henfrey - Thursday, 19 March 2015, 5:26 PM

The process of decomposing longer tenor Exchange traded derivatives (futures and swaps) contracts for the equivalent shorter contracts


Let's start with an example - a trader buys a futures contract for delivery for the whole of 2018, a so-called Cal-18 contract

Every day that contract is available to trade, and the Exchange publishes a settlement price for that contract that determines daily margining

At the time of trading (2014) the Exchange does not offer any other contracts covering 2018 - months or quarters for example

At the end of 2017 the trader wants to keep the position open, but the Exchange can't continue to publish a Settlement price for the 2018 yearly contract because it can't be traded (the delivery period has already started)

By this time the Exchange is offering Quarters contracts covering the whole of 2018, and Month contracts covering at least the first three months of 2018

So the Exchange, the Clearing broker and the trader all cascade the year contract into four quarterly contracts; Q1, Q2, Q3, Q4 2018.

Q2, Q3 and Q4 are all still tradable, but the Q1 position needs to be closed out, or itself cascaded into three months, January, February and March

As you've probably realized the January contract will very soon be untradable, so it needs to be

  • Closed out - the trader flattens his position in that contract
  • Taken to or exchanged for an equivalent physical contract 
  • (for financial futures) taken into financial settlement

By cascading longer contracts into shorter contracts shortly before the longer contracts begin delivery the Exchange can effectively offer a small set of monthly, quarterly and yearly contracts, that have monthly granularity in the short term, but cover a period of years into the future

As an example EEX are quoting the following Phelix Futures contracts at the time of writing (11 November 2014):

  • Months - usually current month + next nine months - November 2014 to August 2015
  • Quarters - next eleven Quarters - Q1 2015 to Q3 2017
  • Years - next six years - 2015 to 2020

(If you're wondering why November 2014 is still being quoted then that's because it is financially settled through the delivery month - the contract is not tradable in November)


Cash Flow

by Nick Henfrey - Thursday, 19 March 2015, 5:27 PM

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


Every trade creates one or more cash flows, which represent the payments that will be made:

For deliveries made - often at periodic intervals (e.g. weekly)

For fees, including broker and execution fees, and fees incurred in transportation, storage and inspection of commodities

In general the payment date of all cash flows should be known in advance, the amount of the payment may be fixed or based on one or more index, or be calculated form a formula based on a set of observables, underliers, or other factors


Clean Spark Spread

by Nick Henfrey - Thursday, 19 March 2015, 5:30 PM

A clean spark spread is the spread between the value of power (electricity) on the one hand and the value of the gas needed to generate that power, and any associated carbon costs of generation


The term clean spark spread may refer to

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