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The Effect of Rising Prices and Volatility on Computer-Assisted Trading

Let’s shed light on the long-lasting effect that recent rise in power prices and volatility levels had on computer-assisted trading
7 Mar 2023
Mario Nakhle, Product Management

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“Aggressive” order

a buy/sell order submitted at a price higher/lower than the best ask/bid price currently available in an order book. “Aggressive” orders are matched immediately and remove liquidity from the market.

Asset-backed trader

energy market participant who is selling energy generated by production assets and/or buying energy at-scale for consumers. Some asset-backed traders engage in asset-less/proprietary trading in parallel to trading out the production/consumption of the assets they manage. The process of trading production/consumption volumes by selecting, prioritizing and balancing a collection of assets is commonly referred to as “portfolio management”. 

Asset-less trader

(also called proprietary/prop trader); energy market participant who exclusively buys and sells  energy to generate profits from price spreads (e.g. buy low, sell high) without delivering energy. To avoid running into the balancing market, asset-less traders need to ensure that their trading balance (the difference between volumes bought and sold for a given product) is strictly equal to zero at gate closure

Auction trading

trading modality which enables market participants to submit orders in daily Day-Ahead or Intraday auctions in a pay-as-cleared pricing model. If sell/buy orders are below/above the market clearing price, a trade is automatically executed. 

Automated trading

a fully automated trading approach requiring no human involvement across the entire trading value chain. 

Automatic frequency restoration reserve (aFRR)

secondary control reserve, automatically dispatched to restore the nominal grid frequency and gradually support/replace FCR if deviations persist.


holistic trading system that automates every step of a trade’s life cycle from data processing to decision making to order execution. 

Balancing market

TSO-managed market which balances unplanned fluctuations in power production and consumption (i.e. capturing all buy or sell positions that are not being consumed or delivered by energy trading market participants). The balancing market ensures that supply and demand in the power grid remain in equilibrium, providing for a constant grid frequency of 50 Hertz.

Balancing price

imbalance settlement price assigned to balance responsible parties who maintain open buy/sell positions after gate closure and do not consume/produce during the delivery period. This price correlates with the cost of control reserve activations and capacities and is often referred to as the “system price”.

Balance responsible parties (BRPs)

market participants (e.g. power producers, suppliers, consumers) who do not supply balancing energy products. BRPs are responsible for individual portfolio imbalances — i.e. shortage or surplus of electricity created after Intraday gate closure — that are further exposed to an imbalance settlement.

Balancing service providers (BSPs)

market participants (e.g. generation units, storage and demand response facilities) who supply balancing energy products such as aFRR and mFRR which are, in turn, used by transmission system operators to balance the power system.


cash or bank guarantees provided by a market participant to an energy exchange in order to trade certain volumes of power. 

Computer-assisted trading

trading approach aimed at executing orders by employing simple algorithms to optimize timing, pricing and volume.

Continuous trading (Intraday)

trading modality which enables market participants to submit orders in often highly liquid order books to execute trades with counterparties at any given point in time between gate opening and gate closure throughout a given trading day.


in energy trading, a tradable contract is subject to a delivery time frame which obligates buyers/sellers to consume/produce the traded volume. In futures markets, market participants can trade day, weekend, week, month, quarter and year contracts. For example, a market participant who buys 5 MW for the March month contract is obligated to consume 5MWh during every full hour of the month of March. Although, by definition, “product” and “contract” denote the same, the common jargon is to use “product” in spot trading and “contract” in futures and OTC trading.

Control area

geographical area administered by a single transmission system operator (TSO). Most TSOs in Europe administer one country as their control area (e.g. RTE in France). Germany, in contrast, is divided into four control areas, managed by four TSOs (Amprion, 50 Hertz, Tennet and TransnetBW).

Cross-border Intraday coupling (XBID)

Pan-European order book that allows for trades between market participants from different control areas. XBID order books are commonly open until one hour before gate closure.


a TSO/DSO-controlled short-term decrease in electricity production (wind and solar energy in particular) during the periods of oversupply to relieve congestion.

Data processing

collection and manipulation of data points to obtain, transform, or classify usable information. 

Day-Ahead Auction

auction in which market participants can buy or sell power for every hour of the subsequent trading day. The Day-Ahead auction makes up the majority of volume traded in power spot trading. It stretches across all European markets who are part of Multi-Regional Coupling. Great Britain and Switzerland have their own Day-Ahead auctions.

Delivery period

denotes the start and end time of a given product. For example, the delivery period of the 9am hourly product is 9-10am. During the delivery period, buyers/sellers are required to consume/produce energy as per their last position before gate closure.

Distribution system operator (DSO)

entity entrusted with distribution of electric power from generation units to end-consumers by developing, maintaining and operating the energy grid in a relatively small local area (in Europe, there are more than 2500 distribution system operators).


Pan-European Day-Ahead market coupling algorithm to define the market clearing price

Financial transmission rights (FTRs)

long-term cross-border power transmission rights; TSO-induced permissions to transfer specific amount of power across the corresponding border of coupled bidding zones.

Frequency containment reserve (FCR)

primary control reserve, activated within 30 seconds after a deviation occurrence to contain system frequency and level out oscillations. 

Fundamental data

external factors such as weather predictions, demand forecasts or urgent market messages (UMMs) that influence power spot prices.


contracts that obligate counterparties to buy/sell blocks of power at a predetermined date and price in the future.

Gate closure

the moment after which orders for a particular delivery period can no longer be submitted to an order book.


risk management strategy in which long-term energy contracts are traded to mitigate future price volatilities. 


volume-weighted average price of all continuous trades executed during the last 1 hour before product delivery.


volume-weighted average price of all continuous trades executed during the last 3 hours before product delivery. 

Imbalance Settlement

a financial mechanism that automatically assigns a TSO-induced balancing price to a BRP’s portfolio imbalance within a particular settlement period.

Intraday Auction

similar to the Day-Ahead auction, however not necessarily executed ahead of the trading day, not necessarily covering the entire trading day and not necessarily subject to Multi-Regional Coupling

Intraday Continuous

24/7 power spot trading market which enables participants to buy and sell power continuously in hourly, half-hourly and quarter-hourly products up to 5 minutes before delivery. 


the degree of a market’s amount of orders and trades. High liquidity allows for more opportunities to buy/sell power without affecting market prices.

Manual frequency restoration reserve (mFRR)

tertiary control reserve, manually activated by TSOs to support/substitute for aFRR if long-lasting deviations occur.

Manual trading

trading approach which is entirely subject to human decision making and manual order execution.

Market clearing price

price at which supply and demand reach an equilibrium, taking into account the merit order and market coupling. In power trading, the market clearing price is set during the Day-Ahead auction and applied to all market participants for every hour of the trading day.

Market coupling

mechanism aimed at harmonizing power exchanges and managing imports/exports between control areas in order to maintain an interconnected pan-European power market.  The philosophy of market coupling lays the foundation for Cross-Border Intraday Coupling and Multi-Regional Coupling.

Merit order

sequence in which power sources are ranked according to their ascending marginal costs while taking into account forecasted volumes for each power source. The equilibrium between daily demand and the merit order curve is the single most effective indicator of a given day’s market clearing price. For example, on a day with a lot of wind and solar production (lowest-cost power sources) and low demand, expensive power sources such as gas or coal are less likely to be activated, significantly reducing the market clearing price.

Multi-Regional Coupling

pan-European Day-Ahead coupling, streamlining the allocation of cross-border capacities between 19 markets during Day-Ahead auctions. As a result, most European Day-Ahead auctions take place at the same time (12pm CET).

Order book

list of all open (i.e. not yet executed) orders submitted by buyers and sellers. An order is defined by action (buy or sell), limit price and volume. A trade is either executed when the order falls within the limits of the market clearing price (auction trading) or when the limit price of a buy order exceeds that of a sell order or vice versa (continuous trading). Every traded product has a dedicated order book. 

Order execution

submission of buy/sell orders with the aim of executing trades as per a defined action (buy/sell), limit price and volume. 

Over-the-counter (OTC) trading

trades made between known counterparties without the involvement of an exchange, usually executed via a broker or broker software.

“Passive” order

a buy/sell order submitted at a price lower/higher than the best ask/bid price currently available in an order book. “Passive” orders aren’t executed immediately — they float in an order book until they get matched and add liquidity to the market. 

Pay-as-cleared pricing

pricing model employed in auction trading, where all accepted orders trade at the same market clearing price. 


in energy trading, a tradable product is subject to a delivery time frame which obligates buyers/sellers to consume/produce the traded volume. In spot markets, market participants can trade hourly, half-hourly and quarter-hourly products. For example, a market participant who buys 5 MW for the 9-10 am hourly product is obligated to consume 5MWh between 9-10am. Although, by definition, “product” and “contract” denote the same, the common jargon is to use “product” in spot trading and “contract” in futures and OTC trading.


an adjustment of scheduled power feed-ins for particular generation units. Based on grid load calculations, DSO/TSOs can request power plants to increase/reduce production volumes — previously submitted via dispatch schedules — if a potential grid congestion is identified.

Residual load

demand (in MWh) that can’t be served by wind and solar production. 

Spot markets

contrary to futures markets, spot markets are designed to accommodate trading for immediate or very near-term delivery. Day-Ahead auctions, Intraday auctions and Intraday continuous trading constitute spot markets in power trading.

Technical indicators

historical trends and patterns such as trade prices, volumes and order books, used by energy market participants to predict market trends for upcoming products.

Transmission system operator (TSO)

entity entrusted with transmitting electrical power across a specific control area by operating, controlling and balancing the power grid.

Urgent market messages (UMM)

messages denoting unexpected events that may disturb the process of power generation, transmission and/or consumption; e.g. large power plant outages.


volume-weighted average price; an Intraday price indicator which shows the average price of all continuous trades executed between gate opening and gate closure within a given order book.