Glossary Of Terms
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BACK MONTH
Back month contracts are any exchange-traded derivatives contracts apart from the nearest, or front, contract month.
BACKWARDATION
When the price of the nearer term, typically prompt, or another underlying commodity or instrument trades at a premium to the same commodity or instrument traded further forward. Also known as an inverse.
BASELOAD
The minimum amount of electric power delivered or required over a given period of time at a steady rate.
BASELOAD GENERATION
Electric generating equipment normally operated to serve loads on an around-the-clock basis.
BASIS
The differential that exists at any time between the spot price (or cash price) of a given commodity and the price of the nearest futures contract for the same (or related) commodity. The basis may reflect different time periods, product forms, qualities or locations. The cash price minus the futures price equals the basis.
BASIS RISK
Basis risk is the risk that the value of a futures contract (or an OTC contract) that does not move in line with that of the underlying exposure. Alternatively, it is the risk that the cash-futures spread will widen or narrow between the times at which a hedge position is implemented or liquidated.
BASIS SWAP
Basis swaps are used to hedge exposure to basis risk, such as location risk or time exposure risk.
BIODIESEL
a non-petroleum-based diesel fuel, made by applying a special chemical processes called transesterification to vegetable oil or animal fat. It can be used, either by itself or blended with conventional petro-diesel, in unmodified diesel-engine vehicles. This is in contrast to straight vegetable oil (SVO), which can be used only in converted diesel vehicles.
BIOMASS
as a renewable energy source, refers to living and recently dead biological material that can be used as fuel or for industrial production. In this context, biomass refers to plant matter grown to generate electricity or produce for example trash such as dead trees and branches, yard clippings and wood chips biofuel, and it also includes plant or animal matter used for production of fibers, chemicals or heat. (Source, Wikipedia)
BASIS TRADING
To basis trade is to deal simultaneously in a derivative contract, normally a futures contract, and the underlying commodity. The purpose is either to cover derivatives sold, or to attempt an arbitrage strategy. This arbitrage can either take advantage of an existing mis-pricing or be based on speculation that the basis risk will change.
BCF
Billion cubic feet of gas.
BID/ASK
A measure of market liquidity, also known as bid/offer. The bid is the price level at which buyers are willing to buy and the ask is the price level at which sellers are willing to sell. The thinner the spread the higher the liquidity.
BLACK-SCHOLES MODEL
An option-pricing model initially derived by Fischer Black and Myron Scholes in 1973 for securities options and later refined by Black in 1976 for options on futures.
BOOK
The total of all forward positions held by a trader or company.
BOOK TRANSFER or BOOKING OUT
The transfer of title of a cash commodity to the buyer without a corresponding physical movement.
BRITISH THERMAL UNIT (BTU)
The amount of heat required to raise the temperature of 1lb of water by 1 degree Fahrenheit (technically from 60°F to 61°F). It is used to compare the heat producing value of different fuels.
BROKER
An intermediary between traders for physical, futures and over-the-counter deals. Brokers receive a fixed commission predetermined between the broker and his/her client.
BTU
British Thermal Unit.
BUNDLED RATE
A combined charge for the provision of two or more services – eg, gas transportation and storage, or electricity generation and transmission.
BUNDLED SERVICES
Two or more electric or gas services provided at a combined charge – eg, gas transportation and storage; electric generation and transmission.
BUYER’S NOMINATION CONTRACT
A gas contract where the buyer has the option to nominate the delivery requirements up to the predefined delivery capacity. The seller is obliged, under this type of contract, to deliver as requested, although limits are often built into the contract.