How are the date markets regulated

This section presents the special features of electricity trading. The market segments over-the-counter and exchange as well as the trading venues spot and futures market are separated from one another. In the processing of electricity trading transactions, a distinction is made between the trading level and the processing level.

Special features of the property electricity

Due to the special features of electricity, “the electricity market is a goods market with its own laws and not a classic financial market. (Hagena, Martina, von Theobald, Britz, Held (eds.), Electricity trading under financial market supervision, 1st edition, Berlin 2011, p.1 foreword). This is due to the fact that electricity cannot be stored, but can only be stored to a limited extent, namely by converting other forms of energy.

Due to the fact that there are hardly any storage options for electricity, transport networks are necessary so that the electricity generated from the power plants can reach the end customer directly.

At the same time, the demand for electricity is inelastic, at least in the short term, because the demand side, on the other hand, can hardly adjust its demand, at least in the short term. Consumers cannot forego the use of energy in the short term because its retail price has suddenly risen.

Spot and Derivatives Markets

In electricity trading, supply contracts are traded that meet the criteria for a clear description of the place of delivery, the delivery quality and the delivery period. In addition, the delivery quantity and the delivery price are set when the transaction is concluded. .

The fulfillment of a business in electricity trading can take place through the physical delivery of a certain amount of electricity or through a financial cash settlement. Basically, a distinction is made based on the period of time between the conclusion of the transaction and the fulfillment of the transaction, the settlement.

Business deals with settlement no further than two days in the future are referred to as spot market deals.

The spot market is a short-term market in which prompt fulfillment deals, i.e. H. be concluded within short deadlines determined by the trading process. An example of a spot market transaction could be the purchase of one hundredweight of apples at a price of € 3 / hundredweight at a local weekly market. The goods are paid for and handed over promptly (within a week). The motivation for spot market transactions is therefore always to cover an acute physical need for the goods being traded. If the period between the conclusion of the transaction and the settlement is longer than two (in exceptional cases more than two) days, it is a futures market transaction.

Futures trading, on the other hand, is a market in which trades that are to be fulfilled on a date further in the future (e.g. one year) are concluded. The corresponding transactions are usually referred to as futures or futures market transactions. An example of a futures market transaction would be if both sides agreed to a delivery of two quintals of apples at a price of € 3 on 1.1. of the following year. Payment could be made on delivery and the place of performance could be the aforementioned local weekly market.

What trading options are there for electricity?

Figure 1: Power Procurement (Source: Energy Brainpool)

Spot market and futures market transactions can be arranged on the power exchange or on the so-called over-the-counter market (OTC).

Over-the-counter transactions are carried out bilaterally between two trading partners directly and over the counter. There are shops that z. B. can come about through mediation through a broker. The traded products are individually designed by the parties.

The stock exchange is an organized, anonymized market. In contrast to the over-the-counter OTC market, on-exchange trading is monitored by trading surveillance agencies for regulatory purposes. The electricity contracts (products) traded on the exchange are highly standardized.

The introduction of electricity trading opens up new opportunities

For producers, the introduction of trading means that the electricity generated can be actively sold throughout Germany or, alternatively, can be sold on the stock exchange or OTC trading. In addition to concluding full supply contracts, consumers now have the option of purchasing the forecast amounts of electricity strategically, i.e. in the long term, at various times on the trading market. The purchase of energy on the wholesale market for personal use is called structured procurement.