Energy trading is defined as the selling or buying of hard commodities such as electricity or natural gases. The energy supplies have become an inadequate commodity in the global market. Thus, the competition for getting energy resources which are more affordable has gone high. It is difficult for any nation to meet its energy needs on its own. So, the energy trading has become very important for all the countries.Any market is determined by two factors, demand and supply. Market prices of any such energy resources depends on the demand for it. If it is in high demand, then for obvious reasons the prices are high.
A market is transparent only when sellers and buyers are more for trading which results into increase in liquidity. If the margin between demand and supply prices decreases and prices are reliable then it results into a well-functioning market which results into very fair prices in the market. Often, the main complain of the people is about transparency lacking in energy trading. So, to ensure an efficient energy trading, common standards need to be followed and published for the public.
Trading takes place for any energy resource that has high demand and supply. For example, commodities like electricity, natural gases, oil, coal and carbon dioxide allowances. Energy trading takes place in parts. Usually, anonymously trading of such standard products take place on the http://www.xglobalmarkets.com/accounts/islamic-account/ exchanges which means buyer and sellers are not aware of each other.
Know Better the Energy Resources
Before getting started with energy trading, it is essential to understand the various energy resources on which an investor is willing to invest. The following are some of the important sources of energy trading:
Firstly, oil and its different products have been very important energy source for the entire world. It will continue to be a crucial product for the coming decades. Oil is a non- renewable source of energy but still its prices continue to rise because of high demand and rapid consumption.
Natural Gases cover an important portion of energy trading globally. But in comparison to oil, it is a lot more volatile source of energy. Very few reserves are available for natural gases.
Electricity trading comprises of power which is used to measure total flow of electricity at a time and energy is the electricity that flows for a given time. Electricity cannot be stored or kept in stock. Also, its supply and demand keeps on fluctuating.
Coal is another source of energy for trading. It is a non- renewable source so it is present in limited quantity. It is a hydrocarbon fuel which is available in different parts of the world. It is very convenient to store coal and the prices are cheaper in comparison to electricity trading. In fact, it is one of the cheapest source to generate electricity. The only disadvantage of coal is that it pollutes the air when burnt as it generates carbon dioxide and Sulphur dioxide. Hence, consumers hesitate to buy coal.
Role of an Energy Trader
Companies which are involved in energy trading generally use various tools like meteorological survey data and software programs to figure out how the energy prices fluctuate. For instance, if an investor uses a weather report forecasting and finds out thata heatwave will hit soon, then he would prefer to invest on shares of electricity. It is obvious that electricity demand will be high if a heatwave hits, thus the price of shares of electricity will increase which consequently will return huge profit to the investor.
Energy traders maintain financial spreadsheets to help them to predict price rise of various energy products. Hence, the current financial data needs to be continuously updated in these spreadsheets. During trading of energies, paperwork for securities must be filed by the trader.
In comparison to other businesses, energy trading is a lot more nerve-racking. So, to succeed in this trade, it is necessary to be able to work under stress and take wise decisions quickly. Contribution of the whole team is very important for a start-up business. Energy trading can be verylong and time taking. Some of these organizations provide trading setup that are active 24 hours whole year. One needs to have a lot of stamina and dedicate the required hours for energy trading.