Energy Trading: The Organisation

Vincent Kaminski

Running an energy trading operation is a fascinating and usually very lucrative occupation. However, running an energy trading operation well can often be an inhuman task. This is due to a number of factors, primarily information asymmetry and the social dynamics of trading floors. Information asymmetry is involved because of the peculiar properties of the energy markets, which form a closely coupled, integrated system, but still a system of connected, highly specialised niches. After a few months of immersion, a trader or analyst often becomes a world-class expert in a given area. They know more about a specific state retail electricity auction or pipeline flows around the Houston Ship Channel than any other person in the firm. Challenging an expert is always difficult, especially when the expert is young, successful and brash. Unquestionable but narrow expertise often leads to excessive, illusory perceptions of trading and deal-making skills and inflated self-assessment (it is sufficient to read annual self-evaluations to see this). This trait of human personality is known in psychology as the Dunning–Kruger Syndrome, which was summarised as follows.¹¹Justin Kruger, David