Detailed Glossary

A Detailed Glossary of Energy Trading terms for registered users

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by Nick Henfrey - Tuesday, 9 September 2014, 5:26 PM

An Offer is a type of Order; a trader offers to sell a product or commodity at the Offer price


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



by Nick Henfrey - Monday, 13 April 2015, 5:42 PM
At its simplest an energy option is an instrument that gives the buyer the right, but not the obligation, to buy, or to sell, a commodity at a specified price at some point in the future.
More complex options may be financially settled, the payout being dependent on some condition(s) being met, and varying with some observable value(s) at the time of exercise
There is usually a single non-refundable payment made by the buyer of the option (the holder) to the seller of the option (the writer) - this is the option premium
First, let's try and categorize the different types of options we'll come across, and then describe each in detail, starting with the simplest:
1. Vanilla options - so called because they are a standard "flavour", which may themselves be divided into:
a) Simple physical options - already briefly described above, these include European and American options
b) Financially settled options - these pay out if some measurable, usually a published index, meets some specified criteria. The payout varies with this or other measurables. This category includes Asian options
c) Simple combination options - not strictly different types of options, but traders frequently combine simple options to tailor risk and payout to their circumstances
2. Exotic options - in contrast to vanilla options, exotic options are non-standard, usually complex and are designed to offer, or conceal, a combination of characteristics
Let's look at the simpler types in more detail
Simple physical options
Simple physical options may be thought of as an option to execute a Forward Contract. Indeed, if the option is exercised it effectively becomes a Forward Contract
When the option is traded the following terms are agreed:
  • Whether the option buyer has the right to sell the commodity or buy it - that is whether the Forward would be a buy or sell:
    • An option to buy is a call option
    • An option to sell is a put option 
  • The price that the commodity will be bought or sold at - the strike price of the Forward Contract
  • The type of the option - which determines the exercise time or period, that is when the buyer of the option may exercise their right
    • A European option may be exercised at a specific date, specified at time of execution
    • An American option may be exercised at any time in a date range, specified at time of execution
  • It also follows that the Option terms must include all terms of the potential Forward Contract, that is delivery location, volume and timing

Financial options

Financial options pay out a cash amount if they are in the money - the cash payout usually being the difference between a fixed strike price, and some variable observable, usually the published price of a energy commodity or product

Spread options and options on swaps (swaptions) are types of financial options

Asian options are financial options which pay out on the average price of an underlier over the delivery period - assuming they are in the money



by Nick Henfrey - Saturday, 7 April 2012, 5:20 PM

An Order is an instruction sent to an Exchange or a Broker to execute a trade unconditionally, or when or if specific criteria are met


A Market Order is the simplest, unconditional, type of Order. It is a simple instruction to buy or sell a specific volume of a product or commodity to be executed immediately at the best price available

A Limit Order is an instruction to buy or sell a specific volume of a product or commodity if the price of execution is at or better than the Limit Price specified with the Order

An Order may combine, in a single instruction, a number of transactions that are required

A Fill or Kill Order requires all transactions to be carried out, or none. Partial execution is not permitted

Exchanges handle all types of Order internally

Other organizations or parts of organizations may accept combination Orders, and then route different parts of the Order to different Exchanges, Brokers or other parts of the organization

For example a large trading organization may have several desks issuing Orders that overlap. An internal order routing capability matches internal orders as far as possible before routing the unmatched orders to external organizations (brokers or exchanges)  

Bids and Offers are types of Order





by Nick Henfrey - Wednesday, 10 September 2014, 7:17 AM

Origination - the negotiation and conclusion of bespoke contracts, and structuring of non-standard products to offer for sale


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

Complex hedging products



by Nick Henfrey - Monday, 13 April 2015, 5:44 PM

OTC - Over-The-Counter

Generally used to refer to any trade not executed with an Exchange


Over-The-Counter trades may be executed by a broker, or directly bilaterally between two parties. The resultant trade, whether brokered or not has the following characteristics:

The trade details may be anything the parties agree - compared to the standardized contracts offered on an Exchange

The agreed trade price is private to the parties - although either may report it to a market data service to increase price transparency

Delivery, settlement, and all credit risk is entirely between the two parties