Free Simple Glossary of Energy Trading terms

An Index is a set of prices that are published for a commodity or product, usually derived from trading data, using an open and independent method

For much more information please refer to the Detailed Glossary

A trade with no optionality

For much more information please refer to the Detailed Glossary

A way of valuing the unrealized P&L of a simple linear Forward, Futures contract or Swap

For much more information please refer to the Detailed Glossary

Profit and Loss (P&L) is a finance and risk reporting term to describe the profitability of an individual trade, a book, a desk, or a company. Whilst the P&L of a company includes all activity, and costs (offices, staff etc.) the trading P&L is a measure of the profitability of a single, or a set of, trade(s)

For much more information please refer to the Detailed Glossary

All physically settled derivatives imply either an obligation to deliver, or take delivery of, a commodity at a location at some time in the future

The obligation to deliver a commodity is called a short position of that commodity at that location and time in the future

The obligation to take delivery of a commodity is called a long position of that commodity at that location and time in the future

For much more information please refer to the Detailed Glossary

The p&l of trades (and cash flows) is described as:

• Unrealized - delivery has not yet taken place, the value of the trade is determined by MtM, and the p&l varies each day with the market curve
• Realized - delivery has taken place, the value of the delivered commodity is no longer relevant, and there is no uncertainty about the value of the trade

For much more information please refer to the Detailed Glossary

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

For much more information please refer to the Detailed Glossary

Accounts Payable/Accounts Receivable

Anything relating to these two departments, that is:

• receiving, checking and paying invoices (Accounts Payable)
• raising, sending and chasing payment of invoices (Accounts Receivable)

Often used to refer to invoices and invoiced cash flows

For much more information please refer to the Detailed Glossary

A form of settlement where responsibility for payment is passed to a third party: a Clearing House or Clearing Broker

The Clearing House accepts responsibility for settling the deal.

Credit risk for the seller in the trade is reduced to almost zero

The Clearing House minimizes its Credit Risk by daily margining

For much more information please refer to the Detailed Glossary

An organization that acts as an intermediary wishing to trade on an Exchange

For much more information please refer to the Detailed Glossary