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A broker acts as an intermediary in the trading process
Most energy execution brokers operate a trading platform, that allow Orders to be submitted on a variety of standardized trading Products or Instruments.
When Orders are matched then a trade is executed, and the parties making the matched Bid and Offer are each notified that a trade has been executed.
There are three types of brokers commonly involved in energy trading:
Capacity may be bought in short or long-term auctions directly from the Transmission System Operators (TSOs), or may be traded bilaterally
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
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
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):
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)
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
The term clean spark spread may refer to
The Clearing House accepts responsibility for settling the deal.
Credit risk for the seller in the trade is reduced to almost zero
In general a trading organization engages a Clearing Broker to act on its behalf
As the organization enters into a trading position the Exchange marks the trades to market on a daily basis, and transfers cash into or out of margin accounts based on the change of the value of the trading position since the previous day. The Clearing Broker mirrors this operation to its clients' margin accounts
Every trading organization is required to maintain an amount of cash in the margin account to cover a substantial short term loss in the value of its position. If the trading organization does not maintain this margin then the Exchange closes out the position immediately, using the margin account cash to cover any losses as a result of the close out
Payments into the margin account as a result of new trades that cause an increased open position are called Initial Margin payments
Payments into the margin account as a result of the value of trades falling are called Variation Margin payments
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