Where and how does trading take place?
Trading of energy happens in part on exchanges, but, unlike financial trading, also to a great extent outside of them. In Europe there are currently more than a dozen of these exchanges, the most important ones are the European Energy Exchange (EEX) in Leipzig and the NORDPOOL in Oslo. More than a hundred participants from many countries carry out trading there. One of the biggest commodity exchanges for natural gas, oil, metals and weather derivatives is the Intercontinental Exchange (ICE) in Atlanta in the US. The New York Mercantile Exchange (NYMEX) is the biggest futures exchange for energy in North America.
Standard products are offered on the exchanges and trading takes place anonymously, i.e. seller and buyer do not know each other. “Clearing” is of particular significance on the exchanges: this mechanism guarantees the financial integrity of a contract by way of a premium. Off-exchange transactions are also increasingly protected in this manner.
The majority of dealings take place outside of the exchanges. Analyst Anna Katharina Obertacke explains the concept: “in so-called over-the-counter (OTC) trading, the participants buy or sell individual products. OTC is facilitated by brokers through electronic trading.” Direct trading between two contract partners over the telephone is of similar importance
“Trading gas in Europe is special”, Overtacke says, “the largest volume of trade takes place via virtual trading points (hubs). No physical gas flows there but this is where contract partners do their deals.” Important hubs are the National Balancing Point in the UK and the Title Transfer Facility in the Netherlands. Gas trading on the EEX has seen a significant increase in liquidity. .