Financial Products in Energy Markets
Expert-defined terms from the Certificate in Energy Trading course at London School of Planning and Management. Free to read, free to share, paired with a professional course.
Accounting principles are essential in the energy trading sector as they… #
In the context of energy markets, accounting principles are used to value energy commodities, such as oil and gas, and to report financial transactions related to energy trading. Related terms include financial reporting, asset valuation, and cost accounting.
Arbitrage is a trading strategy used in energy markets to exploit price differen… #
It involves buying a commodity at a low price in one market and selling it at a higher price in another market, thus earning a profit. In energy markets, arbitrage is commonly used to trade oil, gas, and other energy commodities. Related terms include market analysis, price discovery, and risk management.
Asian options are a type of exotic option used in energy markets to manag… #
They are also known as average price options and are used to hedge against price fluctuations in energy commodities. Asian options are different from traditional options in that they are based on the average price of the underlying commodity over a period of time, rather than the price at a specific point in time. Related terms include options trading, hedging strategies, and price risk management.
Basis risk is a type of risk that arises from differences in prices betwe… #
It is a major concern in energy markets, particularly in the context of hedging and trading. Basis risk can be managed using various strategies, including basis swaps and basis options. Related terms include price risk, hedging strategies, and market analysis.
Brent crude is a type of crude oil that is used as a benchmark for pricin… #
It is a light, sweet crude oil that is extracted from the North Sea and is considered to be of high quality. Brent crude is widely used as a benchmark for pricing oil because it is easily transportable and has a high demand. Related terms include oil prices, benchmark pricing, and energy markets.
Call options are a type of option that gives the holder the right, but no… #
In energy markets, call options are used to manage price risk and to speculate on price movements. They are commonly used to trade oil, gas, and other energy commodities.
Capacity trading is a type of trading that involves buying and selling ca… #
Capacity rights refer to the right to use a certain amount of energy infrastructure, such as pipelines or transmission lines. Capacity trading is used to manage congestion in energy markets and to ensure that energy supply meets demand. Related terms include energy infrastructure, congestion management, and market analysis.
Carbon credits are a type of financial instrument used in energy markets… #
They are traded on carbon markets and can be used by companies to offset their emissions. Carbon credits are based on the principle of cap-and-trade, where companies are allocated a certain amount of emissions allowances and can buy or sell them on the market. Related terms include carbon pricing, emissions reduction, and sustainability.
Cash settlement is a type of settlement used in energy markets where trad… #
Cash settlement is commonly used in financial energy markets, such as futures and options markets. Related terms include settlement procedures, cash markets, and financial energy markets.
Commodity exchanges are platforms where energy commodities, such as oil a… #
They provide a marketplace for buyers and sellers to trade commodities and offer a range of trading instruments, such as futures and options. Commodity exchanges are regulated by government agencies and are subject to strict rules and regulations. Related terms include trading platforms, commodity markets, and regulatory frameworks.
Contango markets are markets where the price of a commodity is higher in… #
Contango markets are common in energy markets, particularly in the context of oil and gas trading. They are characterized by a positive slope in the forward price curve, which means that the price of the commodity increases over time. Related terms include market analysis, price discovery, and trading strategies.
Crude oil is a type of energy commodity that is used as a feedstock for r… #
Crude oil is traded on energy markets and is subject to price fluctuations based on supply and demand. Related terms include oil prices, refining processes, and energy markets.
Derivatives markets are financial markets where derivatives, such as futu… #
Derivatives markets are used to manage price risk and to speculate on price movements in energy commodities. They are commonly used in energy markets to trade oil, gas, and other energy commodities. Related terms include financial markets, derivatives trading, and price risk management.
Emissions trading is a type of trading that involves buying and selling e… #
Emissions trading is used to reduce greenhouse gas emissions and is based on the principle of cap-and-trade.
Energy efficiency refers to the use of technology and practices to reduce… #
Energy efficiency is a key aspect of energy markets, particularly in the context of reducing greenhouse gas emissions and improving energy security. Related terms include energy conservation, sustainability, and environmental protection.
Forward contracts are a type of contract used in energy markets to buy or… #
Forward contracts are commonly used to manage price risk and to ensure supply of energy commodities. Related terms include contract types, price risk management, and trading strategies.
Futures contracts are a type of contract used in energy markets to buy or… #
Futures contracts are traded on commodity exchanges and are subject to margin requirements and settlement procedures. Related terms include contract types, trading strategies, and price risk management.
Gas storage refers to the storage of natural gas in underground facilitie… #
Gas storage is used to manage seasonal fluctuations in gas demand and to ensure supply of gas during periods of high demand. Related terms include gas infrastructure, storage facilities, and energy security.
Hedging strategies are used in energy markets to manage price risk and to… #
Hedging strategies involve buying or selling derivatives, such as futures and options, to offset price fluctuations in the underlying commodity. Related terms include price risk management, hedging techniques, and trading strategies.
Interconnectors are pipelines or transmission lines that connect two or m… #
Interconnectors are used to manage congestion in energy markets and to ensure that energy supply meets demand.
Liquidity providers are market participants that provide liquidity to ene… #
Liquidity providers are essential to the functioning of energy markets, as they help to facilitate trading and to provide price discovery. Related terms include market analysis, liquidity provision, and trading strategies.
Market analysis is the process of analyzing energy markets to identify tr… #
Market analysis is used to inform trading decisions and to manage price risk in energy commodities. Related terms include trading strategies, market research, and price forecasting.
Natural gas is a type of energy commodity that is used as a feedstock for… #
Natural gas is traded on energy markets and is subject to price fluctuations based on supply and demand. Related terms include gas prices, energy markets, and power generation.
Oil prices refer to the price of crude oil and refined petroleum products… #
Oil prices are subject to fluctuations based on supply and demand and are influenced by a range of factors, including geopolitics, weather, and economic trends. Related terms include energy markets, price volatility, and trading strategies.
Options trading is a type of trading that involves buying and selling opt… #
Options trading is used to manage price risk and to speculate on price movements in energy commodities. Related terms include derivatives markets, options strategies, and price risk management.
Peak load refers to the maximum amount of electricity demand during a spe… #
Peak load is a key aspect of energy markets, particularly in the context of managing congestion and ensuring supply of electricity. Related terms include electricity demand, peak management, and energy security.
Pipeline transportation refers to the transportation of energy commoditie… #
Pipeline transportation is a key aspect of energy markets, particularly in the context of managing supply chain logistics and ensuring delivery of energy commodities. Related terms include energy infrastructure, transportation systems, and logistics management.
Power generation refers to the process of generating electricity from var… #
Power generation is a key aspect of energy markets, particularly in the context of managing electricity supply and demand. Related terms include electricity markets, power plants, and energy security.
Price risk refers to the risk that the price of an energy commodity will… #
Price risk is a key aspect of energy markets, particularly in the context of managing price volatility and ensuring supply of energy commodities. Related terms include price volatility, hedging strategies, and trading strategies.
Put options are a type of option that gives the holder the right, but not… #
In energy markets, put options are used to manage price risk and to speculate on price movements.
Renewable energy refers to energy generated from natural resources, such… #
Renewable energy is a key aspect of energy markets, particularly in the context of reducing greenhouse gas emissions and improving energy security. Related terms include energy sustainability, renewable energy sources, and environmental protection.
Risk management is the process of identifying, assessing, and mitigating… #
Risk management is used to manage price risk, credit risk, and operational risk in energy commodities. Related terms include risk assessment, risk mitigation, and trading strategies.
Settlement procedures refer to the processes used to settle trades in ene… #
Settlement procedures involve the exchange of cash or commodities between buyers and sellers and are subject to strict rules and regulations. Related terms include settlement systems, clearing procedures, and regulatory frameworks.
Spark spreads are a type of spread that involves buying and selling elect… #
Spark spreads are commonly used in energy markets to manage price risk and to speculate on price movements. Related terms include spread trading, spark spreads, and price risk management.
Storage facilities refer to the facilities used to store energy commoditi… #
Storage facilities are a key aspect of energy markets, particularly in the context of managing supply chain logistics and ensuring delivery of energy commodities. Related terms include energy infrastructure, storage systems, and logistics management.
Swaps contracts are a type of contract used in energy markets to exchange… #
Swaps contracts are commonly used to manage price risk and to speculate on price movements in energy commodities. Related terms include derivatives markets, swaps trading, and price risk management.
Trading strategies refer to the approaches used by market participants to… #
Trading strategies involve the use of various trading instruments, such as futures and options, to manage price risk and to speculate on price movements. Related terms include trading techniques, market analysis, and price forecasting.
Transmission lines refer to the high #
voltage power lines used to transmit electricity from power plants to consumers. Transmission lines are a key aspect of energy markets, particularly in the context of managing electricity supply and demand. Related terms include electricity infrastructure, transmission systems, and energy security.
Volatility trading is a type of trading that involves buying and selling… #
Volatility trading is commonly used in energy markets to manage price risk and to speculate on price movements. Related terms include options trading, volatility strategies, and price risk management.
Weather derivatives are a type of derivative used in energy markets to ma… #
Weather derivatives are commonly used to hedge against weather-related losses and to speculate on weather patterns. Related terms include weather risk management, derivatives trading, and price risk management.
Wholesale markets refer to the markets where energy commodities, such as… #
Wholesale markets are a key aspect of energy markets, particularly in the context of managing supply and demand. Related terms include energy markets, wholesale trading, and price discovery.
Yield curves are a type of graph used in energy markets to show the relat… #
Yield curves are commonly used to analyze the term structure of interest rates and to inform trading decisions. Related terms include yield analysis, term structure, and trading strategies.