Managing Risk in Small & Mid-Sized Nodal Trading Organizations

If you work in nodal power markets, you don’t have to be told that it’s a unique industry.  While this can lead to intriguing and lucrative opportunities, it can also make it more difficult for owners or managers of small to mid-sized trading organizations to manage their risk around their nodal power trades.

While there are standard processes and systems available for other commodity traders, it can be difficult to identify the correct solution in nodal power trading.  While ETRM systems exist, the cost is often prohibitive for trading shops just getting off the ground, or for smaller trading organizations in general.  Additionally, ETRMs are not tailored to nodal power markets, and despite their cost, they often do not fulfill the requirements of nodal power trading organizations. 

Regardless, in order to be successful in nodal power markets, there are some key questions trading owners or managers need to take into consideration: 

• Do you understand how much money your traders are making or losing day over day, in a timely manner? 

• Do you know how much risk your traders are taking, and it is an acceptable amount of risk to take with you or your investor’s money? 

• Are you able to trust your traders, but also independently verify the risk they are taking? 

If you can’t answer these questions, you may not be effectively managing your business.  If you are unaware of how much money you are making or losing, in a timely manner, you could receive unexpected margin calls or have cash flow issues.  If you or your investors are uncomfortable, or uncertain of how much risk your traders are taking, there may be hesitancy to invest further, impacting your ability to grow.  Unfortunately, the worst potential consequence of overlooking risk management is significant unexpected losses and the resulting cash flow constraints.  As a result, it is absolutely essential that owners and managers of nodal power trading organizations have a handle on their risk management strategy, regardless of their size.  

Yes Energy understands nodal power markets, we’ve been in the business a long time, and we are the premier provider of nodal market data.  If you or your organization are struggling to manage your risk and understand your performance, we would love to hear from you.