A derivative contract that combines two or more commodities to manage a number of related risks. For example, coal for power linked to pollution credits, where the contract compensates the coal user for any extra charges arising from the coal containing more than a certain level of sulphur. The counterparties to a deal agree to settle any differences between the delivered sulphur content of the coal and an agreed benchmark in emission allowances. The coal user is paid when the sulphur content is above the benchmark and pays out when it is below.
Commodity trading and risk management is a subject that is necessarily complicated, and is becoming more so. The Energy Risk Glossary seeks to disentangle and clarify the jargon by providing definitions of commonly used energy and commodity market terms.
These include definitions related to a variety of underlying energy products, as well as technical terms about the many instruments and benchmarks used by energy market participants.
Many of the most recent terms to have been added to our glossary stem from the actions of regulators since the 2008 global financial crisis. The onset of rules, such as the US Dodd-Frank Act and European Market Infrastructure Regulation, has markedly increased the cost and complexity associated with commodity trading. Perhaps they have also increased the need for a handy reference guide such as this.
The glossary is extensively cross-referenced, making for easy and thorough searches. We hope you find the latest edition of the Energy Risk Glossary to be a useful resource.
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