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Detailed Glossary
Detailed Glossary
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Auto Trade Capture | ||
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Auto Trade Capture is a capability in most trading organizations (and many have an application called ATC) that allows trades executed on an electronic trading platform (usually exchange or broker) to be automatically downloaded to our organization's ETRM Detail ATC usually works by accessing an Instance of Trayport GlobalVision which is a proprietary product. Trayport provide broker trading platforms to most common Energy Trading Brokers and some Exchanges, and also acts as an interface to many Exchanges running their own trading platforms Trades executed on compatible platforms may be accessed as XML and mapped into the local ETRM It is normal for trades to be entered into the ETRM in a status that requires a trader to "validate" or "approve" the trade as having been executed Trades may also be received from other platforms, often in the form of FIX format messages Most ATC systems consist of:
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Indexed Forward | ||
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Trading at Settlement | ||
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A type of Futures contract that is physically delivered and settled at the exchange closing price of the contract Detail Traders make bids on an Exchange for a TAS contract, specifying volume and price offset, the Exchange matches bids and offers in the usual way For example a trader may bid to buy 1,000 barrels of crude oil at the settlement price minus 3 cents, if another trader offers to sell that volume at that price then the exchange matches the orders and a TAS futures contract is executed at the settlement price less 3 cents A TAS futures contract is similar to an indexed forward TAS contracts are frequently used in oil futures | ||
Market | ||
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In Energy Trading a Market describes a standardized trading environment for a commodity and a geographic zone The geographic zone is not necessarily the delivery location, but usually determines the valuation of the traded commodity For example API#2 is a market based on the published index for coal in the Amsterdam, Rotterdam and Antwerp (ARA) location; a trade may deliver coal to a port in France but still be part of the API#2 market Detail A market combines attributes of commodity and location and may have an associated calendar and business rules, which provide defaults for any trade associated with the market Some delivery locations are also markets, so far example NBP is a gas location and also market Note the similarity and difference to a Master Agreement which has similar attributes | ||
Asset | ||
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In energy trading terms an asset is something an organization owns that can physically provide, transform or move an energy commodity, such as a gas field, a power station, or a refinery Detail In trading terms many assets that transform or help to move a commodity are in effect an option on a spread:
Long term supply contracts are also sometimes referred to as an asset | ||
Futures Contract | ||
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A Futures Contract is an agreement to buy or sell a commodity at a fixed time in the future executed on or with an Exchange Detail Note the similarity in description to a Forward Contract We will focus mainly on the differences Exchanges list standardized products that may be traded. A product describes a standardized commodity, delivery period and delivery location that may be traded Exchanges list a buy and a sell price for every different product they list. These buy and sell prices are provided by Market Makers Futures Contracts are always cleared Futures Contracts may be physically or financially settled A financially settled futures contract may be taken into the delivery period, and is settled by daily margining at the daily fixed in price If you're wondering how that is different to an exchange-traded swap - then the difference is a swap is very like a financially settled futures contract, but the swap is generally not daily margined | ||
Exposure | ||
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Exposure is the sensitivity of the value of a trade, or a portfolio, to some market variable A single trade may have Exposure to multiple market variables, and we measure the Exposure to each variable separately. In general there is an Exposure to each independent market variable that determines the value of the trade Detail Consider a simple Physical fixed price Forward delivering in a year's time There is an Exposure to the commodity underlier, let's say a Coal value The Exposure is the shift in value of the trade with each unit shift in the price (or value) of the underlier So a trade to buy 100 tonnes of coal might shift by $1 per tonne, for each shift of $1 per tonne in the price of coal, the 100 tonnes Exposure is 100 100 whats? Let's look at the units. We want the shift in price = 100 tonnes * $1 per tonne = $100, per unit shift in the price of coal = $100 / $1 / tonne = 100 tonnes So the Exposure has units of the underlier! If you've looked at the definition of Delta you will have seen that Delta is properly the change in value per unit of the trade per change in value per unit of the underlier So we get the important formula Exposure = Position * Delta A trade may have multiple deltas and multiple Exposures - our simple Forward deal may not be as simple as we think:
Exposures are additive - they can be summed across a set of trades or portfolios Deltas are not additive - because they are dimensionless ratios | ||
APAR | ||
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Accounts Payable/Accounts Receivable Anything relating to these two departments, that is:
Often used to refer to invoices and invoiced cash flows Detail In general the Master Agreement of a trade determines the agreed invoicing cycle and dates A typical invoicing cycle would be to invoice a month's worth of delivery on the 5th day of the following month Our organization must raise invoices, and may raise shadow invoices or purchase orders to match against invoices received from our counterparties Once sent, an invoice cannot be deleted or just ignored, but it can be reversed by issuing a credit note. A credit note reverses part of, or a whole invoice Equally a debit note may be raised to reverse part of, or all of, a shadow invoice or purchase order. This should match a credit note that our counterparty will send to us The set of invoices, shadow invoices and purchase orders, credit notes and debit notes, and the cash flows held in them may be collectively referred to as APAR | ||
Accrual | ||
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A known future cash flow that has not been invoiced Detail This term is a perfectly standard accounting term. Accruals commence at the time of delivery and continue until an invoice is raised, or an invoice is received For continuously delivered commodities (gas and power), accruals build up over the delivery month, day by day, and continue until an invoice is generated or received early the next month Accruals are posted to the General Ledger, and are reversed out when an invoice is posted Unrealized P&L is not accrued - only delivered (and therefore usually realized) P&L is accrued | ||
Theta | ||
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The value of options varies with time, in general the uncertainty in the price of the underlier reduces as the moment of exercise approaches. Theta is the measure of how much the value of a trade, or set of trades, varies with time Detail Theta is one of the Greeks that measure sensitivity of the value of a trade or portfolio to the passage of time Like most Greeks, except Delta, it is zero for linear trades (trades with no optionality)
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