Dark Energy Consulting
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Detailed Glossary
Detailed Glossary
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Origination | ||
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Origination - the negotiation and conclusion of bespoke contracts, and structuring of non-standard products to offer for sale Detail Origination teams and originators in energy trading organizations are about putting together large integrated contracts, outside standard master agreements. These might involve: Structured long-term procurement deals particularly for oil and gas Virtual Assets - Virtual storage, virtual power plants, virtual refining | ||
Offer | ||
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An Offer is a type of Order; a trader offers to sell a product or commodity at the Offer price Detail The trader offers a product for sale at a particular price Offers are normally submitted to a Broker or an Exchange If an offer is matched by a subsequent bid by another party, then a trade is executed If the offer matches an already quoted bid then a match is made and a trade is executed See also Bid | ||
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 | ||
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 | ||
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 | ||
Storage | ||
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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 | ||
Withdrawal | ||
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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 | ||
Spread | ||
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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:
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
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Swap | ||
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An Energy Swap is generally a swap of two different prices on an identical, or similar, Energy underlier Detail While financial market swaps may involve swapping almost any cash flow for any other cash flow, an Energy Swap involves the swap of two different prices on an identical, or similar energy product or underlier. The two types of Energy Swap are:
By definition, Energy Swaps are always financially settled Energy swaps may be traded OTC or on an Exchange An Energy Swap is very similar to a a financially settled Futures or Forward Contract Exchange traded swaps are generally settled through non-daily margining - and therefore have credit risk Financially settled futures, like all futures, are settled through daily margining - and have minimal credit risk | ||