Energy trading markets have developed
rapidly since the growth of oil spot
markets in the late 1970s. The
liberalisation of natural gas and
electricity markets across Europe has led
to the emergence of gas and power trading
markets in many countries. Coal trading has
also developed in recent years and the
trading of carbon emissions has grown
following the creation of the EU Emissions
This section provides an introduction to the energy markets and the different commodities traded, setting a foundation for the later exploration of energy trading and Back Office issues.
- Introduction to energy markets
- Natural gas
A range of different contracts financial instruments have been developed for trading energy commodities. This module explains the key concepts of commodity trading and features of different contract types. The specific contracts and trading markets for each energy market are described.
- Introduction to trading
- Types of Contracts
- Trading by Energy Markets
This module puts energy trading operations into context, showing how they fit into the life cycle of a deal. It describes the structure of a trading organisation and explains the roles and responsibilities of the various different functions. It follows the life cycle of a deal, describing the main tasks that are carried out at each stage and explains the key operating principles. It also identifies common problems that can arise.
- Risk Management
- Front, Middle and Back Office
All business is characterised by risk. However, there are certain categories of risk that are particularly relevant to energy markets. This module considers the issues relating to risk, in particular the price risk driven by the inherent volatility of energy prices, and examines means of managing energy price risk. Risks such as delivery risk, operational risk, credit risk and regulatory risk are also explored.
- Introduction to risk
- Energy Markets and Volatility
- Risk Management
- Market Risk
- Credit Risk
- Operational Risk
- Liquidity Risk
- Delivery risk
- Regulatory Risk
- The Role of the Back Office in Reducing Risk
Master Agreements provide a vital role in managing the process of energy trading. By trading under a Master Agreement counterparties do not need make complicated legal and commercial arrangements for each deal, and can instead concentrate on the deal itself. The relevant Master Agreement covers a wide range of areas including credit, netting, confirmation and settlement to simplify and standardize the trading process.
This module provides an overview of the key principles and practices of Master Agreements, as well as providing examples from the main Master Agreements in use for energy trading.
Over the past decade, the regulation of energy trading has become increasing
complex and wide-ranging, with the introduction of REMIT, a regime tailored
to (physical) electricity and gas trading, and the extension of a series of
financial market regimes to the trading in commodity derivatives, emission
allowances and emission allowance derivatives. Relevant regulations include
MiFID II/MiFIR, EMIR, MAR/CSMAD, SFTR and the EU capital adequacy regime
(IFR/IFD, currently under development and replacing CRR/CRD IV). Compliance
with these regulations is a vital part of the modern energy trading business.
This module provides an overview of the key energy trading regulations and regulatory roles, as well as a guide to the potential impact of these regulations on energy trading operations. Key areas covered include the overall regulatory context, as well as the detailed application of REMIT, EMIR, MiFID II/MiFIR and MAR/CSMAD to European energy markets.
The Back Office has a crucial role in maintaining the operations of an energy trading business. This module examines the principles of Back Office operations and concisely introduces the main tasks of Back Office staff. While different trading businesses have varying approaches to elements of Back Office operations, this module provides a simple explanation of the practicalities of common Back Office task and processes.
- Main tasks
- OTC confirmation
- Exchange reconciliation
- Other tasks