Market Fundamentals in Energy Trading
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.
AEC Acceleration Event Contract refers to a type of financial instrument… #
Related terms include weather derivatives and options contracts.
API Grade is a standard for crude oil and petroleum product… #
API Grade is a standard for crude oil and petroleum products, which defines the specific characteristics of the oil, such as its density and viscosity, to determine its quality and suitability for refining and use in various applications.
Arbitrage refers to the practice of taking advantage of a price difference betwe… #
Arbitrage refers to the practice of taking advantage of a price difference between two or more markets to earn a profit, by buying a commodity or financial instrument at a low price in one market and selling it at a higher price in another market, such as buying oil at a low price in the spot market and selling it at a higher price in the futures market.
Asset Optimization is the process of maximizing the value of a company's… #
Asset Optimization is the process of maximizing the value of a company's assets, such as power plants, pipelines, and storage facilities, by optimizing their use and operation to minimize costs and maximize revenue, through the use of advanced analytics and modeling techniques.
Baseload Power is the minimum amount of electricity required to meet the… #
Baseload Power is the minimum amount of electricity required to meet the constant demand for power in a given area, such as a city or region, and is typically provided by base load power plants, such as nuclear or coal fired power plants.
Basis Risk refers to the risk that the price of a commodity or financial… #
Basis Risk refers to the risk that the price of a commodity or financial instrument at a specific location will differ from the price at another location, such as the difference between the price of oil at a refinery and the price of oil at a storage facility.
Brent Crude is a type of light crude oil that is used as a benchma… #
Brent Crude is a type of light crude oil that is used as a benchmark for pricing oil in the global market, and is known for its high quality and low sulfur content.
BTU British Thermal Unit is a unit of measurement for energy, which repre… #
BTU British Thermal Unit is a unit of measurement for energy, which represents the amount of energy required to raise the temperature of one pound of water by one degree Fahrenheit, and is commonly used to express the energy content of fuels such as natural gas and oil.
Capacity Market is a type of market where generators and other market par… #
Capacity Market is a type of market where generators and other market participants can buy and sell capacity to generate electricity, such as a reserve margin, to ensure that there is sufficient capacity to meet peak demand.
Carbon Credits are financial instruments that represent the right to emit… #
Carbon Credits are financial instruments that represent the right to emit a certain amount of greenhouse gases, such as carbon dioxide, and can be bought and sold on the open market, such as in a cap and trade system.
Cash Flow is the movement of money into or out of a business or project,… #
Cash Flow is the movement of money into or out of a business or project, such as the revenue generated from the sale of energy or the costs associated with production, and is used to evaluate the financial performance and solvency of a company or project.
Clearing House is an intermediary that acts as a middleman between buyers… #
Clearing House is an intermediary that acts as a middleman between buyers and sellers in a financial transaction, such as a trade in energy futures or options, to guarantee the settlement of the transaction and mitigate the risk of default.
Commodity Exchange is a platform where commodities, such as energy … #
Commodity Exchange is a platform where commodities, such as energy and agricultural products, can be bought and sold, such as the New York Mercantile Exchange or the Chicago Board of Trade.
Contango refers to a situation in which the price of a commodity or financial in… #
Contango refers to a situation in which the price of a commodity or financial instrument is higher in the future than it is in the present, such as when the price of oil is higher in the futures market than it is in the spot market.
Crude Oil is a type of petroleum that is extracted from the ground… #
Crude Oil is a type of petroleum that is extracted from the ground and refined into various products, such as gasoline, diesel fuel, and jet fuel.
Day Ahead refers to a type of market where electricity or other commoditi… #
Day Ahead refers to a type of market where electricity or other commodities are traded for delivery on the next day, such as a day ahead market for electricity.
Derivative Instrument is a financial instrument that derives its value fr… #
Derivative Instrument is a financial instrument that derives its value from an underlying asset, such as a commodity or security, such as an option to buy or sell a specific amount of oil at a specified price.
Dispatch Protocol refers to the rules and procedures used to manage the f… #
Dispatch Protocol refers to the rules and procedures used to manage the flow of electricity or other commodities in a network, such as a dispatch protocol for electricity transmission and distribution.
Diversification refers to the practice of spreading investments or risks … #
Diversification refers to the practice of spreading investments or risks across multiple assets or markets to minimize volatility and maximize returns, such as diversifying a portfolio of energy investments across different sectors and geographies.
Emissions Trading refers to the buying and selling of emissions cr… #
Emissions Trading refers to the buying and selling of emissions credits, which represent the right to emit a certain amount of greenhouse gases, such as carbon dioxide, and can be used to comply with emissions regulations or to profit from the sale of excess credits.
Energy Efficiency refers to the practice of using less energy to achieve… #
Energy Efficiency refers to the practice of using less energy to achieve the same level of output or performance, such as using energy efficient appliances or lighting systems.
Forward Contract is a type of financial instrument that obligates the buy… #
Forward Contract is a type of financial instrument that obligates the buyer and seller to buy or sell a specific amount of a commodity or security at a specified price on a specific date, such as a forward contract to buy oil at a specified price in six months.
Fuel Price refers to the cost of a specific type of fuel, such as gaso… #
Fuel Price refers to the cost of a specific type of fuel, such as gasoline or natural gas, and is often used to calculate the cost of energy or transportation.
Futures Contract is a type of financial instrument that obligates the buy… #
Futures Contract is a type of financial instrument that obligates the buyer and seller to buy or sell a specific amount of a commodity or security at a specified price on a specific date, such as a futures contract to buy oil at a specified price in three months.
Gas Storage refers to the practice of storing natural gas in underground… #
Gas Storage refers to the practice of storing natural gas in underground facilities or other containers, such as salt caverns or depleted oil and gas fields, to meet peak demand or to optimize the use of gas infrastructure.
Gasoline Blendstock is a type of petroleum product that is used to… #
Gasoline Blendstock is a type of petroleum product that is used to make gasoline, such as reformate or alkylate, and is often traded on the open market.
Hedge Fund is a type of investment vehicle that uses derivatives a… #
Hedge Fund is a type of investment vehicle that uses derivatives and other financial instruments to manage risk and maximize returns, such as a hedge fund that invests in energy commodities or securities.
Henry Hub is a natural gas trading hub located in Louisiana, which… #
Henry Hub is a natural gas trading hub located in Louisiana, which serves as a benchmark for pricing natural gas in the United States and is used as a reference point for natural gas prices.
Imbalance Charge refers to a fee or penalty that is imposed on market par… #
Imbalance Charge refers to a fee or penalty that is imposed on market participants who fail to balance their energy production or consumption with their scheduled deliveries or receipts.
Interconnector Capacity refers to the amount of electricity or gas that c… #
Interconnector Capacity refers to the amount of electricity or gas that can be transmitted through an interconnector, such as a pipeline or transmission line, which connects two or more systems or markets.
Intrady Market refers to a type of market where electricity or other comm… #
Intrady Market refers to a type of market where electricity or other commodities are traded for delivery within a single day, such as an intraday market for electricity or gas.
ISO New England is an independent system operator that manages the… #
ISO New England is an independent system operator that manages the flow of electricity in New England, and is responsible for ensuring the reliability and efficiency of the regional grid.
Liquidity Provider is a market participant that provides liquidity … #
Liquidity Provider is a market participant that provides liquidity to a market, such as a broker or dealer, by buying and selling commodities or securities to facilitate trading.
Load Factor refers to the ratio of the average demand for electric… #
Load Factor refers to the ratio of the average demand for electricity to the peak demand for electricity, and is used to evaluate the efficiency and reliability of a power system.
Margin Call refers to a request from a broker or exchange f… #
Margin Call refers to a request from a broker or exchange for a trader to deposit additional collateral or margin to cover potential losses or exposure.
Market Making refers to the practice of providing liquidity to a m… #
Market Making refers to the practice of providing liquidity to a market by buying and selling commodities or securities at prevailing prices, such as a market maker for energy commodities or securities.
Microgrid System refers to a small #
scale power system that operates in isolation from the main grid, such as a microgrid that serves a single building or community.
Natural Gas is a type of fossil fuel that is composed primarily of… #
Natural Gas is a type of fossil fuel that is composed primarily of methane and is used as a fuel for heating, cooking, and electricity generation.
Net Back refers to the practice of settling a trade or transact… #
Net Back refers to the practice of settling a trade or transaction by netting the gains and losses of multiple trades or positions, such as netting the gains and losses of a portfolio of energy trades.
NYMEX Exchange is a commodities exchange located in New York, whic… #
NYMEX Exchange is a commodities exchange located in New York, which provides a platform for trading energy and other commodities, such as oil and natural gas.
Open Interest refers to the total number of outstanding contracts… #
Open Interest refers to the total number of outstanding contracts or positions in a particular commodity or security, such as the open interest in oil futures or options.
Option Contract is a type of financial instrument that gives the holder t… #
Option Contract is a type of financial instrument that gives the holder the right, but not the obligation, to buy or sell a specific amount of a commodity or security at a specified price, such as an option to buy oil at a specified price.
OTC Market refers to a type of market where commodities or securities<… #
OTC Market refers to a type of market where commodities or securities are traded over the counter, such as a bilateral trade between two parties or a trade through a broker or dealer.
Peak Demand refers to the highest level of demand for electricity… #
Peak Demand refers to the highest level of demand for electricity or other commodities during a specific period, such as the peak demand for electricity during a hot summer day.
PJM Interconnection is a regional transmission organization that m… #
PJM Interconnection is a regional transmission organization that manages the flow of electricity in the northeastern United States, and is responsible for ensuring the reliability and efficiency of the regional grid.
Power Purchase Agreement is a contract between a generator and a <… #
Power Purchase Agreement is a contract between a generator and a buyer of electricity, such as a utility or end user, which specifies the terms and conditions of the sale, including the price, quantity, and delivery schedule.
Price Discovery refers to the process of determining the market price<… #
Price Discovery refers to the process of determining the market price of a commodity or security, such as through an auction or other trading mechanism.
Real Time refers to the current or actual time, such as real time pric… #
Real Time refers to the current or actual time, such as real time pricing or real time trading, which reflects the current market conditions and prices.
Renewable Energy refers to energy that is generated from natural r… #
Renewable Energy refers to energy that is generated from natural resources, such as sunlight, wind, or water, which can be replenished naturally and are not depletable.
Reserve Margin refers to the amount of excess capacity or reser… #
Reserve Margin refers to the amount of excess capacity or reserves that are available to meet peak demand or to cover unexpected outages or shortages.
Risk Management refers to the practice of identifying, assessing, and … #
Risk Management refers to the practice of identifying, assessing, and mitigating risks, such as market risks or credit risks, through the use of hedging strategies or other techniques.
Scalability Factor refers to the ability of a system or process… #
Scalability Factor refers to the ability of a system or process to be scaled up or down to meet changing demands or conditions, such as the scalability of a renewable energy system.
Settlement Price refers to the final price at which a trade or transac… #
Settlement Price refers to the final price at which a trade or transaction is settled, such as the settlement price of an option contract or a futures contract.
Spark Spread refers to the difference between the price of electricity… #
Spark Spread refers to the difference between the price of electricity and the price of natural gas, which is used to calculate the cost of generating electricity from gas.
Spot Market refers to a type of market where commodities or securities… #
Spot Market refers to a type of market where commodities or securities are traded for immediate delivery, such as a spot market for oil or gas.
Storage Capacity refers to the amount of space or capacity … #
Storage Capacity refers to the amount of space or capacity that is available to store commodities, such as oil or gas, which can be used to meet peak demand or to optimize the use of infrastructure.
Swap Contract is a type of financial instrument that involves the exchang… #
Swap Contract is a type of financial instrument that involves the exchange of one asset or cash flow for another, such as a swap contract to exchange fixed prices for floating prices.
System Operator refers to the entity that is responsible for managing the… #
System Operator refers to the entity that is responsible for managing the flow of electricity or other commodities in a network, such as a system operator for a transmission grid or a distribution system.
Tolling Agreement is a contract between a generator and a buyer… #
Tolling Agreement is a contract between a generator and a buyer of electricity, which specifies the terms and conditions of the sale, including the price, quantity, and delivery schedule, and may include provisions for tolling or processing fees.
Trading Volume refers to the total amount of commodities or securities… #
Trading Volume refers to the total amount of commodities or securities that are traded during a specific period, such as the trading volume of oil futures or options.
Transmission Line refers to a high #
voltage line that is used to transmit electricity from a generation facility to a substation or load center.
Unit Commitment refers to the process of determining which units o… #
Unit Commitment refers to the process of determining which units or generators should be committed or dispatched to meet demand, such as a unit commitment algorithm or optimization technique.
Variable Cost refers to a cost that varies with the level of productio… #
Variable Cost refers to a cost that varies with the level of production or activity, such as the cost of fuel or labor, which can be used to calculate the marginal cost of production.
Volatility Index refers to the measure of the fluctuations or v… #
Volatility Index refers to the measure of the fluctuations or variability in the price of a commodity or security, such as the volatility index for oil prices or stock prices.
Weather Dericatives are financial instruments that are used to manage … #
Weather Dericatives are financial instruments that are used to manage weather related risks, such as temperature or precipitation risks, which can be used to hedge against weather related losses or gains.
WTI Crude is a type of light crude oil that is used as a benchmark… #
WTI Crude is a type of light crude oil that is used as a benchmark for pricing oil in the global market, and is known for its high quality and low sulfur content.
Yield Curve refers to the graphical representation of the relationship be… #
Yield Curve refers to the graphical representation of the relationship between the yield or interest rate of a security and its maturity or term, which can be used to evaluate the expected return on investment or the credit risk of a security.