Trade & Position Management

Assuming there is a segregation of duties, trade administration and position management is a front office function.  At a high-level, traders must be able to enter their trades with the correct static data associations, and evaluate the impact the deal has on the overall position ensuring it meets their trade mandate. 

As we have seen the assignment of associated static data is managed by the system administrator. Once this is set up with the correct options the trader can enter a trade.

Adding A Gas Trade

The process and steps in entering a Gas trade are shown below:

Step 1 - Adding the Trade Details

First Navigate to the Trades menu on left hand side of the screen and select New Gas Trade. Here you are given the option of entering either an OTC deal or an exchange deal. Typically, an exchange deal is one that is entered directly into the exchange platform.  Conversely there is a relatively high change that an OTC deal has been executed over the phone and there is no straight through process.

The trade details screen below outlines the key data that needs to be input. Not all fields are mandatory, these can be configured by the system administrator dependant on the way business is conducted with the counterparty.

Gas Trade Entry


Trade date, counterparty and basket are mandatory fields which must be configured to progress.  The Trade ID is a system populated unique identifier.  The trader then selects the house they wish to trade on behalf of, write any associated notes concerning why the trade is being done now, if there is a premium or commission that must be passed to the end customer this can be entered too.  Importantly the trader must select the product, which is being traded, this helps to determine the basket which is being traded too.

Both the commodity and product will define the basket parameters from the drop down, and in some cases a financial book might need to be a mandatory field to assist with financial reporting.

If the data is populated sufficiently, pressing the next button will take the trader to the next tab to insert the key trade components of the transaction.

Step 2 - Assigning Gas Trade Components

The key trade components of the gas OTC deal are presented in the screen below.  In short there are a number of pre-selections which can be chosen to ensure the correct financial parameters of the trade are assigned.

Trade Components

The essential elements are as follows:-

Trade type - The drop down will provide a choice between standard, actualisation trade or a sell back.  The former is a simple buy or sell transaction, the actualisation trade is one which is primarily used to balance gas when a new purchase requirement or demand forecast is updated in the system.  A sell-back essentially cancels out an existing trade when you are looking to take advantage of achieving a better weighted average cost.

 

Include Holiday - There is also the option to include or exclude holidays, a bespoke transaction typically used for domestic customers where there is inevitably usage over the weekend and during bank holidays.

When a holiday is included, the trade will apply to bank holidays and weekends.  The trade tenor can be adjusted to assign the correct time period for the deal.  Here there are options to trade either

  • A day or days 
  • Weekend 
  • Balance of the week
  • The week ahead
  • The balance of the month
  • Month
  • Quarter
  • Season
  • Gas year/calendar year

If the user is trading a month the user can select the month using a drop-down format.
The other key data can be selected such as volume (in therms or kWh), whether the transaction is a buy or a sell and the strike price the deal is done.

Unless the trader wishes to allocate a trade to a specific portfolio/basket in the trade entry screen, then there is no need for further action.  Just add the component and move to the next screen where some basic trade analysis is performed.

Step 3 - Gas Trade Analysis

The trade analysis screen is primarily used to check and balance that the transaction entered is the intended one, and improves the trade position and hedge position assigning the correct percentage. And then answers the question of how this transaction impacts the weighted average cost.

If the trade is a portfolio-based across multiple baskets and automatically allocated, then the transaction will be represented in a screen similar to the one below where trade tables and ticks and crosses outline the impact to the portfolio.

Trade Analysis

The final stage is to review the position and then mark the transaction as ready to be confirmed.
 

Adding A Power Trade

As with gas there are 2 types of transactions which can be uploaded in the system, an OTC transaction or an exchange deal.  Exchange deals are similar to all requirement deals where there is potentially a different price and volume for each half hour.

Under the Exchange heading both a horizontal template or a vertical template can be used to upload a spreadsheet which either represents a day, a month or a bespoke time period for a look alike exchange deal or an all requirements transactions which merchant traders sometimes offer. 
The process and steps in entering a Power trade are shown below:

Step 1 - Assigning Power Trade Components

This step is the same as Gas as indicated in Step 1 in previous section, the trade details screen outlines the key data that needs to be input. Not all fields are mandatory, these can be configured by the system administrator dependant on the way business is conducted with the counterparty.

Step 2 - Assigning Power Trade Components 

The key trade components of the power OTC deal are presented in the screen below. In short there are a number of pre-selections which can be selected to ensure the correct financial parameters of the trade are assigned.

Power Trade Component

The essential elements are as follows:-

Trade type - The drop down will provide a choice between standard, actualisation trade or a buy back.

The former is a simple buy or sell transaction, the actualisation trade is one which is primarily used to balance gas when a new purchase requirement or demand forecast is updated in the system, a buy-back essentially cancels out an existing trade and looking to take advantage of achieving a better weighted average cost of power.

Include Holidays - There is also the option to include or exclude holidays, a bespoke transaction typically used for domestic customers where there is inevitably usage over the weekend and during bank holidays. The trade tenor can be adjusted to assign the correct time period for the deal.
 
Here there are options to trade either:

  • Day 
  • Weekend
  • Week
  • Month
  • Quarter
  • Season Year

Note. once selected the default dates are automatically populated. 

If the user is trading a month the user can select the month using a drop-down format.
The other key data can be selected such as volume (in MWh or MW), whether the transaction is a buy or a sell and the strike price the deal is done.

Unless the trader wishes to allocate a trade to a specific portfolio/basket in the trade entry screen, then there is no need for further action.  Just add the component and move to the next screen where some basic trade analysis is performed.

Step 3 - Power Trade Analysis 

The trade analysis screen is primarily used to check and balance that the transaction entered is the intended one and improves the trade position, improves the hedge position assigning the correct percentage and how this transaction impacts the weighted average cost of power.

Also, importantly the trade needs to be matched off against the correct calendar.  For standard OTC trades in the UK market the EFA calendar is used, where there is a small and important anomaly that the electricity day commences at 11pm the previous day.

If the trade is a portfolio-based trade across multiple baskets and automatically allocated, then the transaction will be represented in a screen similar to the one below where trade tables and ticks and crosses outline the impact to the portfolio.


Power Trade Analysis


The final stage is to review the position and then mark the transaction as ready to be confirmed.