Electricity has several similarities to traditionally traded financial assets (bonds, equities, commodities), however there are two important features that distinguishes it from them:
- 1. Electricity is produced and consumed instantly (since electricity cannot be stored in general, at least not economically and in large quantity, consequently supply and demand must be constantly balanced in real time).
- 2. Neither production nor consumption can be precisely forecasted, so there is a constant need for geographical adjustments.
The market of electricity is quite complex: there are numerous types of players, they can wear more than one hat while they are interlinked and interdependent in the same time. The next figure shows this complex relationship.
Natural gas is one of the most commonly-traded commodities out there. Being highly volatile, it presents plenty of opportunities for traders. Natural gas is currently the second most used form of energy to generate power. The popularity of natural gas has been maintained by its increased use in developing countries like China and Indonesia for the last decade or so. Natural gas is used to heat buildings, boil water, fuel vehicles, cook food, run air conditioning units and power industrial furnaces. Household appliances like a gas hob or a house’s radiators function by turning the energy supplied by natural gas into heat.
