Trading Jobs Energy Trading For Dummies 2

Question 1

What does the term 'spark spread' measure in energy trading?

Accepted Answer

The profit margin between natural gas input cost and electricity output price

Answer

The spark spread is the gross margin a gas-fired power plant earns from selling electricity after buying the natural gas needed to produce it.

Question 2

In a contango market, what is the relationship between futures and spot prices?

Accepted Answer

Futures prices are higher than the spot price

Answer

Contango is when futures prices for later delivery are above the current spot price, often reflecting storage and carrying costs.

Question 3

What is the primary purpose of a hedge in energy trading?

Accepted Answer

To reduce exposure to adverse price movements

Answer

Hedging uses offsetting positions to limit losses from unfavorable changes in commodity prices.

Question 4

Which benchmark is the primary price reference for North American crude oil?

Accepted Answer

West Texas Intermediate (WTI)

Answer

WTI, priced at Cushing, Oklahoma, is the leading benchmark for crude oil in the United States.

Question 5

What does 'Henry Hub' refer to in natural gas markets?

Accepted Answer

The benchmark pricing point for US natural gas futures

Answer

Henry Hub in Louisiana is the delivery point for NYMEX natural gas futures and the main US gas price benchmark.

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