Energy Trading Terminology

Question 1

OTC

Answer 1

“Over the Counter” - Contracts that are traded and negotiated, directly between two parties, without going through an exchange or other intermediary.

Question 2

1BD-M

Answer 2

Expiration Calendar: 1st Business Day Before Nymex WTI

Question 3

Clearing House

Answer 3

A clearing house is a financial institution formed to facilitate the exchange of payments, securities, or derivatives transactions. The clearing house stands between two clearing firms. Its purpose is to reduce the risk of a member firm failing to honor its trade settlement obligations.

Question 4

NYMEX

Answer 4

The New York Mercantile Exchange is a commodity futures exchange owned and operated by CME Group of Chicago.

Question 5

CME

Answer 5

CME Group Inc. is a global markets company. It is the world’s largest financial derivatives exchange, and trades in asset classes that include agricultural products, currencies, energy, interest rates, metals, and stock indexes.

Question 6

ETD

Answer 6

Exchange Traded Derivatives: Derivatives instruments are traded via specialized derivatives exchanges or other exchanges. Such derivatives instruments include futures and options with various underlying asset classes such equities, fixed income and currencies.

Question 7

1BD-B-NYM WTI

Answer 7

Expiration Calendar: 1st Business Day Before Nymex WTI

Question 8

WTI

Answer 8

West Texas Intermediate Crude Oil Futures: The world’s most liquid oil contract. WTI Crude Oil futures are the most efficient way to trade the US light, sweet crude oil blend (according to CME).

Question 9

25th-B-TM

Answer 9

25th of the Month before the Trade Month

Question 10

Penu-NG

Answer 10

Penultimate Month NG

Question 11

Henry Hub

Answer 11

As the delivery point for Henry Hub Natural Gas futures, the Henry Hub, located in Erath, Louisiana, is a nexus of several natural gas interconnections.

Question 12

Sabine Pipe Line LLC

Answer 12

Owns Henry Hub and is an interstate pipeline that offers both interruptible and firm transportation services to its customers. Sabine’s 131-mile bi-directional pipeline is used to transport natural gas between Erath, Louisiana and Port Arthur, Texas.

Question 13

NG-FS

Answer 13

Expiration Calendar: Natural Gas Final Settle

Question 14

NG

Answer 14

Henry Hub Natural Gas (NG) Futures allow market participants significant hedging activity to manage risk in the highly volatile natural gas price, which is driven by weather-related demand.

Question 15

LBD-M

Answer 15

Expiration Calendar: Last Business Day of Current Month

Question 16

LD-M

Answer 16

Last Day of Current Month

Question 17

Calendar Spread

Answer 17

A calendar spread typically involves buying and selling the same type of option (calls or puts) for the same underlying security at the same strike price, but at different (albeit small differences in) expiration dates.

Question 18

Calls and Puts

Answer 18

A Call Option gives the buyer the right, but not the obligation to buy the underlying security at the exercise price, at or within a specified time. A Put Option gives the buyer the right, but not the obligation to sell the underlying security at the exercise price, at or within a specified time.

Question 19

Clearing House

Answer 19

A clearing house is a financial institution formed to facilitate the exchange of payments, securities, or derivatives transactions. The clearing house stands between two clearing firms. Its purpose is to reduce the risk of a member firm failing to honor its trade settlement obligations.

Question 20

MMBTU

Answer 20

Natural gas futures trade through the Chicago Mercantile Exchange (CME Group). There are several types of natural gas, and contracts, which can be traded. The most heavily traded contract, preferred by day traders, is the Henry Hub Natural Gas Futures (NG). Each contract represents 10,000 million British thermal units (mmBtu).

Question 21

ICE

Answer 21

The Intercontinental Exchange is an American Fortune 500 company formed in 2000 that operates global exchanges, clearing houses and provides mortgage technology, data and listing services. The company owns exchanges for financial and commodity markets, and operates 12 regulated exchanges and marketplaces.