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Detailed Glossary
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Commodity | ||
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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 Detail 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 Oil 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) Coal Sourced from underground coal deposits Transported by ship, barge and truck Biomatter 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 | ||
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A type of contract in which the delivery period is the remainder of the current month Detail 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 | ||
Basket | ||
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Bid | ||
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A Bid is a type of Order; a trader bids to buy a product or commodity at the Bid price Detail 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
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Blotter | ||
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A Blotter is a traditional term for a form on which trade details are recorded by a trader as trades are executed Detail 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
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Capacity | ||
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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) Detail 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
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Carbon | ||
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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 Detail 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) | ||
Cascading | ||
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The process of decomposing longer tenor Exchange traded derivatives (futures and swaps) contracts for the equivalent shorter contracts Detail 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
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):
(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 | ||
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A payment that has been, or will need to be paid, on a particular date Detail 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 | ||
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