Do you need guidance through energy trading lingo? We just created a nice tool for you - a trading glossary! An extensive energy trading term and their meanings to understand the technical jargon of the industry.
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ACER: Agency for the Cooperation of Energy Regulators, established by the EU as an independent body to foster cooperation among National Regulatory Authorities for the integration and completion of an internal energy market for electricity and natural gas. ACER’s focus is on the requirements of EU energy legislation.
Aggregator: a market participant who bundles distributed energy resources together into a virtual power plant, controlling them remotely and trading them as a single entity on power markets.
Algorithm: a set of well-defined instructions that helps traders automate and manage complex trading scenarios.
Algorithmic trading (algo-trading): combining quantitative models and algorithmic decision making with automated trading to minimize human intervention and tasks during the trading process, automatically placing bids/offers and executing trades, usually via APIs, on exchanges or other trading venues.
Augmented trading: a trading approach where human capabilities are augmented with self-learning AI. The augmented trading expert moves into the role of a designer, combining market knowledge with the latest AI technology to deliver unmatched trading performance, to discover new ways of trading, and to stay ahead of the constantly changing market.
API: Application Programming Interface, a software interface that allows two applications to talk to each other.
Ancillary services: services managed by power grid operators to ensure that frequency, voltage and power load remain within defined limits so that the grid remains stable. Ancillary services can be categorized as frequency measure, voltage measure, supply reconstruction, and operational management. They address issues ranging from small, short-term power fluctuations to unexpected plant outages and even system-wide blackouts.
Artificial intelligence: any technique that enables machines to mimic human intelligence by collecting and processing data.
Arbitrage: a method of trading a security or commodity in which the trader attempts to profit from price differences between several markets, generally with a view to making a purchase on one market and selling it on another at a higher price.
Ask / Offer: an order to sell; the price at which sellers are willing to sell.
Auction: a competitive process for procuring electricity after a period of time during which the orders entered by exchange members in the order book are accumulated but not executed.
Automated trading: using software to minimize human intervention and tasks during the trading process, automatically placing bids/offers and executing trades, usually via APIs, on exchanges or other trading venues.
Backtesting: running an algorithmic trading system on historical data to verify how the system would have performed during the specified time period or how it would perform under conditions similar to those of that time period.
Balancing market: a market managed by a Transmission System Operator in order to guarantee the availability of power reserves, to ensure global supply-demand balance in real time.
Balancing mechanism (UK): a tool used by the UK’s grid operator National Grid to balance electricity supply and demand in real-time by purchasing changes in generation and consumption.
Bid: an order to buy; the price level at which buyers are willing to make a purchase.
Bid/ask spread: the price difference between best bid and best ask at a specific moment in time.
Block order: a special order type on day-ahead and intraday power markets to trade a specific number of consecutive delivery periods, usually several hours within the same day.
Broker: an individual or firm that acts as an intermediary between counterparties to a transaction. Much of over the counter energy trading occurs through brokers.
CEER: Council of European Energy Regulators, a not-for-profit organization established for the cooperation of the independent energy regulators of Europe. Compared to ACER, CEER is responsible for everything in energy regulation beyond ACER’s focus on EU legislative requirements.
Clean spark spread: the profit margin of a gas-fired plant, i.e. the price which it receives for selling power, minus the cost of the gas required to produce it and the required number of carbon allowances.
Clean dark spread: the profit margin of a coal-fired plant, i.e. the price which it receives for selling power, minus the cost of the coal required to produce it and the required number of carbon allowances.
Clearing: financial settlement of transactions.
Clearing house: an intermediary between buyers and sellers who validates a transaction and ensures that both parties meet their contractual obligations.
Closed position: executing a transaction that is the exact opposite of an open position, thereby nullifying it and eliminating the initial exposure. Closing a long position would entail selling it, while closing a short position would involve buying it back.
ComTrader: a trading front-end used for continuous intraday trading on EPEX SPOT and other energy spot markets using the M7 trading architecture of DeutscheBörse Group.
Continuous intraday trading: trading that takes place in the hours before delivery and after the day-ahead auction. Orders may be executed as soon as they are placed in the order book (as opposed to an auction).
Credit risk: the risk that a financial loss will be incurred if a counterparty to a transaction does not or is unable to fulfill its financial obligations in a timely manner, usually as a result of financial default or insolvency.
Cross trade: a trade in which one organization is both buyer and seller of the same product.
Data analytics: the science of analyzing raw data in order to extract insights.
Day-ahead auction: a daily auction for the trading of electricity for the following day.
Intraday auction: an auction for the trading of electricity for the current day. Available only in some markets; timing varies.
Derivative: a contract whose value depends on that of an underlying asset, such as a future or option on a physical energy commodity.
ECC: European Commodity Clearing, part of the EEX Group, a central clearing house providing clearing services for EEX, EEX Asia and EPEX SPOT and for the partner exchanges HUPX, HUDEX, NOREXECO, SEEPEX and SEMOpx.
EEX: European Energy Exchange, a leading energy exchange in Europe which operates markets for energy and related products. EEX offers contracts on power futures, natural gas spot, futures and options, and emission allowances, as well as freight and agricultural products.
EFET: European Federation of Energy Traders, an association of European energy traders in markets for wholesale electricity and gas. Promotes competition, transparency, and open access in the European energy sector and develops standards for common aspects of wholesale energy transactions.
Elbas: Electronic system operated by Nord Pool that allows exchange members to trade on the Nord Pool intraday continuous market.
Elspot: Electronic system operated by Nord Pool that allows exchange members to trade in Nord Pool day-ahead auctions.
ENTSO-E: European Network of Transmission System Operators for Electricity, the association for the cooperation of the European Transmission System Operators.
EPEX SPOT: part of the EEX Group operating one of the two largest spot power exchanges and Nominated Electricity Market Operators in Europe, operating day-ahead and intraday markets that cover Austria, Belgium, Denmark, Germany, Finland, France, Luxembourg, the Netherlands, Norway, Poland, Sweden, the United Kingdom and Switzerland.
ETS: EPEX Trading System, an electronic system operated by DeutscheBörse Group that allows exchange members to trade in EPEX SPOT day-ahead and intraday auctions.
Exchange: an entity established to provide an efficient competitive market, open on a non-discriminating basis to all electricity suppliers, which meets the loads of all exchange customers at efficient prices.
Forward market: an over-the-counter marketplace that sets the price of tradable assets for future delivery.
Futures market: an exchange market using standardized contracts between two parties to buy or sell a specified asset of standardized quantity and quality at a specified future date at a price agreed today.
Gate closure: the time at which market participants must submit their final bids and offers. In continuous markets and balancing markets this is defined by the amount of time prior to physical delivery.
Hedging: an investment that is made with the intention of reducing the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting or opposite position in a related commodity.
Iceberg order: a large order that has been split into several smaller orders in order to hide the actual quantity of the order.
ID-1 price: an index on EPEX SPOT defined as the weighted average price of all continuous trades executed within the last trading hour of a contract up to 30 min before delivery start.
ID-3 price: an index on EPEX SPOT defined as the weighted average price of all continuous trades executed within the last 3 trading hours of a contract up to 30 min before delivery start.
Intraday auction: an auction for the trading of electricity for the current day. Available only in some markets; timing varies.
Intraday market: a market where the buying and selling of power takes place after the day-ahead auction, in the last few hours before power delivery.
Limit order: Buy or sell order which is entered with a specified price limit and executed at that limit or at a better price.
Liquidity: is defined as a market's feature which allows traders to quickly purchase or sell an asset without causing a drastic change in the asset's price and determines the costs of trading in a given market or contract.
Local flexibility market: a marketplace for trading the flexibility of distributed energy resources locally, oftentimes at a distribution system level, to efficiently manage congestion in the grid and ensure security of supply.
Long position: having bought a good or commodity, or having a positive inventory or balance in the good or commodity from a production source.
Machine learning: a subfield of artificial intelligence that enables machines to improve as they are exposed to more data over time.
Market coupling: a process to efficiently manage grid congestion between adjacent power spot markets allowing the matching of power exchange orders and the implicit allocation of the available cross-border capacities received from the Transmission System Operators.
Market risk: the risk that value will be lost due to a change in the market price over time.
Mark-to-market: the value of a trade calculated at the current trading price; due to changes in its market value, traders need to settle profits and losses daily.
M7: electronic system operated by DeutscheBörse Group that allows exchange members to trade on the EPEX SPOT intraday continuous market. Also used by several other exchanges.
NEMO: Nominated Electricity Market Operator, a power exchange / market operator with a mandate to run the day-ahead and integrated electricity markets within the European Union.
Nord Pool: One of the two largest power exchanges and Nominated Electricity Market Operators in Europe, operating day-ahead and intraday markets that cover Austria, Belgium, Denmark, Estonia, Finland, France, Germany, Latvia, Lithuania, Luxembourg, the Netherlands, Norway, Poland, Sweden and the United Kingdom.
NRA: National Regulatory Authority, an independent body responsible for ensuring that its country meets its targets for energy markets and implements all EU regulatory policy.
Open position: any established or entered trade that has yet to close with an opposing trade.
Order: a bid or offer for a product.
Order book: All orders on a given exchange for a certain product.
Order-to-trade ratio: the ratio of unexecuted orders to transactions. Exchanges each define a maximum ratio which trading members may not exceed.
OTC: over the counter, a bilateral agreement in which two parties contract directly with each other, without the involvement of an exchange. Trading can take place directly between counterparties or through brokers, via a variety of channels including electronic platforms, phone or chat.
Physical power market: a market with contracts for the purchase and delivery of physical power, as opposed to financial power markets, which trade derivatives (financial instruments based on power prices).
Portfolio: the combination of energy assets managed and traded by a company: includes available energy supplies and any efficiency or demand-reduction services that affect actual market demand.
Position: the net quantity of all Buy and Sell trades in any given product.
Product: delivery of electricity in a specific time window. On intraday markets these can be defined in one-hour, half-hour or 15-minute periods.
Prop trading: proprietary trading; trading in financial instruments using one’s own capital.
P&L / PnL: Profit and Loss, the way traders refer to the daily change of the value of their trading positions. It can be either realized or unrealized. With open positions, the PnL is still changing in response to market moves and thus unrealized. By closing positions, the unrealized PnL becomes realized PnL.
Quantitative analysis: a type of market analysis that relies on mathematical and statistical models to identify trading opportunities.
REMIT: regulation on wholesale energy market integrity and transparency; the regulatory framework for identifying and penalizing insider trading and market manipulation in Europe’s wholesale energy markets.
Risk management: control and limitation of the risks an organisation faces because of its exposure to changes in financial market variables, such as foreign exchange and interest rates, equity and commodity prices or counterparty creditworthiness.
SDAC: Single Day-Ahead Coupling, an integrated pan-European, cross-zonal day-ahead market for electricity trading.
Settlement: a two-way process in the final stage of a transaction; the buyer receives the assets and the seller receives the payment.
Settlement risk: The risk that arises when payments are not exchanged simultaneously.
Short position: having sold a good or commodity, or having a negative inventory or balance in a good or commodity due to unmet consumption.
SIDC: Single Intraday Coupling, formerly called XBID; an EU-wide, cross-zonal intraday electricity market.
Spot market: market on which transactions regarding products are concluded and/or registered which are settled within a period of two settlement days. Settlement can take place immediately (Intraday), the following day (Day-Ahead) or two days ahead.
Spread: see bid/ask spread.
Time spread: the difference in the price of two contracts with the same underlying commodity but different delivery times.
Trade: outcome of the matching of buy and sell orders.
Trade execution: the completion of a buy or sell order.
Trading signal: actionable “buy” or “sell” suggestion, made according to a predetermined set of criteria.
TSO: Transmission System Operator, an independent organization that transports energy on a national or regional level, using fixed infrastructure.
Value at risk: an estimate of the size of a loss from a trading portfolio over a certain period of time.
Volatility: the price fluctuations of a commodity.
VWAP: volume-weighted average price, the average price of a product weighted by the total trading volume.
VPP: virtual power plant, a set of distributed energy resources operated by an aggregator using a centralized control system.
Wholesale power market: a market where electricity is bought and sold before it is delivered to consumers over the power grid.
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