1) A trading strategy to profit from market inefficiencies in price differences of a given commodity, either at the same location or at different geographical locations. Grade arbitrage is trading the difference in the price of a commodity in the same location – for example, the difference in the prices of two sweet crudes in north-west Europe. Geographical arbitrage is trading the difference in the price of the same grade in different locations. Often grade and geographical arbitrage are combined – in transatlantic arbitrage, for instance, which is trading the price difference between, for example, Brent crude in Europe and West Texas Intermediate (WTI) in the US. This calculation will include the cost-of-carry as well as the cost of the alternative crude in the US.
2) Attempting to profit from differences in price when the same security, currency or commodity is traded on two or more markets.
3) Attempting to benefit from different regulations in different areas of jurisdiction.
* see regulatory arbitrage
The Energy Risk Glossary, now in its eighth edition, provides an at-a-glance explanation of the myriad specialised terms and acronyms used in energy trading and risk management.
This year, the guide has been updated by Aviv Handler of ETR Advisory. Energy Risk would like to thank him for his input into this edition, which benefits greatly from his valuable experience and insight into energy markets.
The fast-changing nature of these markets means much has changed since our last edition – almost 200 new entries and revisions have been made this year. Reflecting the increasing importance of regulation, definitions of the Markets in Financial Instruments Directive (MiFid) and the Ljubljana-based Agency for the Cooperation of Energy Regulators (Acer) make it into the glossary for the first time. A focus on improving back-office infrastructure and mitigating counterparty risk is also apparent from the inclusion of terms such as ‘portfolio reconciliation’ and ‘portfolio compression’.
The glossary is extensively cross-referenced, making for easy and thorough searches. We hope you find it useful.
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