Know your trade types

An accurate and clearly communicated classification of the types of trade a company carries out brings a better understanding of risk methodologies and where they are best used across the enterprise, says Greg Keers

There are just three basic reasons for a firm to execute a trade in the energy markets: to clear physical positions in the market – that is, do physical clearing trades; to make money through speculative trades; and to reduce financial risk – by hedge trading.

But immature trading operations, such as fledgling energy trading operations within traditional utilities, typically have problems classifying trades in these categories. And when trades are executed without clear objectives, problems can