Knowledge Base
70+ essential CTRM and ETRM terms explained — from arbitrage and backwardation to XVA and Z-scores. Each entry includes why it matters, a real-world example, and related terms.
79 terms · A–Z
A digital connection that allows commodity trading platforms, pricing providers, CTRM systems, and risk systems to exchange data automatically.
Modern commodity trading is heavily data-driven. APIs are essential for automated trade capture, price feeds, EMIR reporting, invoicing, and settlement integration.
A CTRM platform pulls ICE futures prices every 5 minutes through an API feed to update mark-to-market valuations.
A trading strategy where a trader profits from price differences for the same commodity across different markets, delivery locations, or time periods. Arbitrage opportunities exist when markets are temporarily inefficient.
Arbitrage is one of the most important activities in global commodity markets because it drives price alignment between regions and helps ensure supply flows to where demand is strongest.
If Brent crude is trading cheaper in one region than another (after freight costs), a trader may buy in the cheaper region and sell in the expensive one.
A commodity option where the payoff is calculated based on the average commodity price over a set period rather than the price on a single day. APOs are commonly used in oil, LNG, and refined product markets.
Many physical commodity contracts settle based on average monthly prices (for example, Platts monthly averages). APOs allow traders to hedge exposures that are linked to those average prices.
A refinery buys crude indexed to the monthly average Brent price and purchases an APO to protect against rising average prices.
A market condition where the spot price of a commodity is higher than the futures price. This often signals tight supply or immediate demand pressure.
Backwardation influences inventory decisions. When markets are backwardated, it becomes less profitable to store commodities because future prices are lower.
Crude oil is trading at $85 today, but the six-month futures contract is at $80. This indicates backwardation.
The price difference between a physical commodity price and a benchmark reference price. Basis is crucial in physical commodity trading.
Most physical trades are priced as Benchmark Price + Basis Differential. Basis reflects transportation costs, quality differences, and local supply-demand conditions.
A West African crude cargo may be priced as: Dated Brent + $2.50/bbl.
A widely accepted reference price used for pricing commodities globally. Common benchmarks include Brent (crude oil), WTI (crude oil), TTF (gas), Henry Hub (gas), JKM (LNG), and LME Copper (metals).
Benchmarks standardize pricing across regions and allow financial hedging.
A gasoline cargo may be priced as: ICE Gasoil + premium.
A legal shipping document that proves ownership of a cargo and confirms shipment details such as volume, product, and vessel.
The Bill of Lading is central to commodity settlement. It is used for invoicing, trade finance, and title transfer.
A crude oil trader cannot release payment under a Letter of Credit without the Bill of Lading.
A physical shipment of a commodity transported by vessel, pipeline, rail, or truck. Cargoes are common in oil, LNG, coal, and bulk agricultural trading.
Cargo trading involves logistics, scheduling, demurrage risk, documentation, and quality testing — making it more complex than paper trading.
A crude oil cargo might contain 950,000 barrels loaded from Nigeria to Europe.
A contract settlement method where the difference between contract price and market price is paid in cash rather than physical delivery.
Cash settlement reduces operational complexity and is widely used for financial swaps and futures.
A trader buys a Brent swap at $80. If settlement price is $85, the trader receives $5 per barrel.
An intermediary that guarantees the performance of exchange-traded contracts. Clearing houses reduce counterparty default risk.
Clearing houses require margin posting and ensure trades are honored even if one party defaults.
ICE Clear Europe clears Brent futures contracts and ensures settlement integrity.
Cash or assets posted by a trading party to secure obligations and reduce credit exposure.
Collateral is central to modern commodity risk management and regulatory compliance (especially EMIR and Dodd-Frank).
A trader posts $5 million in collateral against a portfolio of gas swaps.
A market condition where futures prices are higher than spot prices, often due to storage and financing costs.
Contango encourages storage because traders can buy spot commodities and sell futures at a higher price.
Crude oil spot is $70, but one-year futures is $78. This is contango.
The other party in a commodity trade contract. Counterparties may be producers, traders, refiners, utilities, banks, or funds.
Counterparty risk is one of the largest risks in physical and OTC commodity markets.
If a counterparty fails to pay for a cargo, the seller may face major financial loss.
The risk that a counterparty will fail to meet payment or delivery obligations.
Commodity trading firms often deal in large cargo values, meaning a single default can create severe losses.
A trader sells an LNG cargo worth $50 million. If the buyer defaults, credit risk materializes.
Software used to manage commodity trading workflows including trade capture, logistics, exposure management, invoicing, settlement, and compliance reporting.
A strong CTRM is the operational backbone of a trading organization, supporting decision-making and controlling risk.
A trader books a Brent swap and a physical cargo into a CTRM, which automatically generates risk exposure and settlement schedules.
A benchmark price used for physical crude oil trading, reflecting the value of Brent crude cargoes delivered in the near term.
Dated Brent is used to price most international crude oil grades, especially in Europe, Africa, and the Middle East.
Bonny Light crude might trade at Dated Brent + $1.20/bbl.
The agreed period during which physical delivery must occur.
Delivery windows impact vessel scheduling, inventory planning, and demurrage exposure.
A contract might specify delivery between 10-15 March.
A charge paid to a vessel owner when a ship is detained beyond the agreed laytime for loading or discharging cargo. Demurrage management is a critical part of physical commodity trading operations.
Demurrage can cost tens of thousands of dollars per day for large tankers. Effective tracking and minimization is essential for protecting trading margins.
A crude oil cargo exceeds laytime by 3 days at discharge port, resulting in $150,000 in demurrage charges.
A financial contract whose value is linked to an underlying commodity price. Common commodity derivatives include swaps, futures, and options.
Derivatives allow traders to hedge exposures and manage price risk.
A jet fuel buyer uses gasoil futures to hedge fuel costs.
A European regulation requiring OTC derivative reporting, risk controls, and margining requirements.
Companies trading derivatives with EU exposure must report trades to trade repositories and ensure compliance.
A UK-based energy trader must submit swap trades to a registered Trade Repository under EMIR rules.
Energy Trading and Risk Management — a subset of CTRM focused specifically on energy commodities including oil, natural gas, power, and emissions. ETRM systems are used by energy trading firms, utilities, and producers.
The energy transition is making ETRM more complex as firms trade across traditional hydrocarbons, renewables, and carbon simultaneously.
A European utility uses an ETRM system to manage its portfolio of gas, power, and carbon positions in a single platform.
A commodity contract traded on a regulated exchange such as ICE, CME, or LME.
Exchange-traded markets offer transparency, high liquidity, and reduced counterparty risk due to clearing.
Brent futures traded on ICE are exchange-traded contracts.
The outright commodity price excluding basis, freight, or quality differentials.
Physical trades are often structured using flat price plus adjustments.
A cargo might be priced at Brent flat price plus premium.
A contractual clause that protects parties from liability if they cannot perform due to extreme unforeseen events.
Force majeure clauses are essential in physical commodity contracts due to geopolitical and logistics risks.
A war disrupts pipeline exports, triggering force majeure.
A private agreement to buy or sell a commodity at a fixed price on a future date.
Forward contracts are widely used in physical supply agreements and OTC markets.
A utility agrees to buy LNG at a fixed price for delivery in six months.
A series of forward prices for a commodity at different future delivery dates. Forward curves are essential for pricing, risk management, and valuation of commodity derivative positions.
Forward curves drive option pricing, swap valuations, and storage economics decisions. Understanding curve shape (contango vs. backwardation) is critical for trading strategy.
A gas trader analyzes the TTF forward curve to decide whether to store gas or sell spot, based on the contango structure.
The cost of transporting commodities, often by vessel, pipeline, or truck.
Freight costs significantly impact delivered commodity pricing and arbitrage opportunities.
A crude oil trader calculates freight costs before deciding whether to ship from West Africa to Asia.
A standardized agreement traded on an exchange to buy or sell a commodity at a future date at a specified price.
Futures provide liquidity and allow hedging without physical delivery in most cases.
A trader sells ICE Brent futures to hedge exposure to falling crude prices.
A marketplace where natural gas is traded, often serving as a benchmark reference point.
Gas hubs enable transparent price discovery and provide reference pricing for long-term gas contracts.
TTF is the main European gas hub benchmark.
The profit remaining after subtracting direct costs such as commodity purchase costs, freight, and storage.
Trading firms track gross margin to measure profitability by trade, cargo, or portfolio.
If a trader buys crude at $70 and sells refined products equivalent to $78 value, gross margin is $8 minus operational costs.
A trade executed to reduce exposure to commodity price movement.
Hedging stabilizes profitability and protects trading firms against volatility.
An airline buys jet fuel swaps to lock in fuel costs.
The primary benchmark price point for US natural gas.
Henry Hub pricing influences LNG exports and global gas markets.
A US LNG contract may be priced as Henry Hub + liquefaction fee.
International trade rules defining delivery responsibilities, costs, and risk transfer between buyer and seller. Common Incoterms include FOB (Free On Board), CIF (Cost, Insurance, Freight), and DAP (Delivered at Place).
Incoterms determine who pays freight, insurance, and who bears risk during transit.
Under FOB, the buyer arranges freight after cargo is loaded.
A pricing method where commodity prices are tied to a benchmark or published index.
Index pricing reduces negotiation complexity and provides transparency.
A diesel contract may be priced as Platts Gasoil + premium.
Collateral posted at the start of a cleared trade to protect against future losses.
Margining is a major liquidity requirement for trading firms, especially during volatile markets.
A gas trader posts initial margin to ICE Clear when trading TTF futures.
A benchmark price for spot LNG in Asia.
JKM is used globally as a reference for LNG spot and derivatives trading.
An LNG cargo delivered to Japan may be priced against JKM.
A compliance process to verify counterparties, assess risk, and prevent financial crime.
Commodity trading involves high-value transactions and is vulnerable to fraud, money laundering, and sanctions risk.
Before trading with a new counterparty, a company verifies their ownership structure and sanctions exposure.
The allowed time for loading or unloading a vessel before penalties apply.
If laytime is exceeded, demurrage charges can become extremely expensive.
A crude oil cargo contract may allow 48 hours laytime at discharge port.
A bank instrument guaranteeing payment to the seller once required documents are provided.
Trade finance is essential for physical commodity flows, especially when cargo values are tens of millions of dollars.
A buyer issues an LC to secure payment for a crude cargo.
How easily a commodity contract can be bought or sold without significantly impacting its price.
Higher liquidity reduces trading costs and improves risk management.
Brent futures are highly liquid, while some African crude grades are illiquid.
A request to post additional collateral when market movements increase exposure.
Margin calls can cause liquidity crises if trading firms cannot meet requirements quickly.
A sudden spike in gas prices triggers margin calls for short positions.
The process of valuing open positions using current market prices.
MTM is used for daily risk management, P&L reporting, and margin calculation.
A trader holds a Brent swap bought at $75. If market is $80, MTM shows a $5 gain per barrel.
The function responsible for trade validation, risk reporting, P&L checks, and ensuring front office trades comply with policies.
Middle office ensures strong internal controls and prevents unauthorized risk-taking.
Middle office confirms the trader booked correct pricing formulas and settlement terms.
A computational technique that uses random sampling to model the probability of different outcomes. In commodity trading, Monte Carlo is used for VaR calculation, option pricing, and scenario analysis.
Monte Carlo enables traders and risk managers to quantify uncertainty and extreme risk scenarios that simpler models miss.
A risk team runs 10,000 Monte Carlo simulations to estimate the portfolio's 99th percentile loss over a 10-day horizon.
Calculates commodity value by subtracting costs such as freight, insurance, and processing from the final sale price.
Netback is widely used in crude oil marketing and refining economics.
A producer calculates netback to decide whether to sell to Europe or Asia.
The formal declaration of delivery volume, schedule, and logistics details for a commodity shipment.
Nominations are essential for gas pipeline deliveries and LNG cargo scheduling.
A gas buyer nominates 100,000 MMBtu/day into a pipeline system.
A derivative contract giving the buyer the right, but not obligation, to buy or sell a commodity at a specified strike price.
Options are used to hedge volatility risk and create flexible protection strategies.
A producer buys a put option to protect against falling crude prices.
Private trades negotiated directly between counterparties rather than traded on an exchange.
OTC markets allow customization of contract terms, delivery points, and settlement structures.
A gas swap settled against TTF index is often traded OTC.
Measures the financial result of trading activity, including both realized profits and unrealized mark-to-market gains.
P&L is the ultimate measure of trading performance.
Selling crude at $85 after buying at $80 generates $5/bbl realized P&L.
The buying and selling of real commodities involving delivery, logistics, and operational execution.
Physical trading is where real commodity supply chains operate and where most trading houses earn margin through logistics optimization.
Buying an LNG cargo FOB Qatar and selling CIF Europe is physical trading.
The maximum volume of commodity (usually natural gas or crude oil) that can be transported through a pipeline system.
Capacity constraints can drive price spikes and create arbitrage opportunities.
If pipeline capacity is full, gas prices may rise in the constrained region.
The net exposure a trader holds in a commodity, either long (buy) or short (sell).
Positions determine risk exposure and P&L sensitivity.
A trader long 10,000 barrels of Brent benefits when prices rise.
The amount paid to purchase an option contract.
Premium is the cost of insurance against price risk.
A trader pays $2/bbl premium for a Brent call option.
A pricing mechanism in physical commodity trading where the initial invoice is based on an estimated price, with final settlement occurring once the actual price is determined (typically based on an averaging period).
Provisional pricing is standard in metals and crude oil trading, where final pricing depends on quotational periods that settle after physical delivery.
A copper buyer receives a provisional invoice at $9,000/mt, with final settlement based on LME average over the following month.
A price adjustment made based on differences in commodity quality such as sulfur content, density, or calorific value.
Not all crude oil or LNG is the same quality, and pricing must reflect this.
High sulfur crude trades at a discount compared to low sulfur crude.
A published reference price from agencies like Platts or Argus used for settlement and index pricing.
Quotations are widely used as contract settlement references.
A diesel contract may settle against Platts Northwest Europe Gasoil quotation.
The profit earned from processing crude oil into refined products such as gasoline, diesel, and jet fuel.
Refinery margins influence crude demand and refined product supply.
A strong diesel crack spread indicates strong refinery margins.
The process of measuring, controlling, and reducing exposure to commodity price movements, counterparty risk, and operational risk.
Without strong risk management, trading firms can collapse during volatile markets.
A trading firm uses VaR, stress testing, and hedging strategies to manage exposure.
The process of closing a near-month futures contract and opening a further-out futures contract to maintain exposure.
Many traders do not take delivery and must roll futures before expiry.
A trader rolls Brent March futures into Brent April futures.
The process of finalizing a trade, including invoicing, payment, and delivery confirmation.
Settlement ensures financial completion of the trade lifecycle.
A cargo invoice is issued after discharge quantity is confirmed.
Where commodities are bought and sold for immediate delivery.
Spot markets reflect real-time supply and demand conditions.
A trader buys LNG for delivery next month in the spot market.
The end-to-end process of sourcing, storing, transporting, and delivering commodities.
Commodity trading firms often profit through supply chain optimization rather than speculation.
Buying crude, storing it, shipping it, and selling to a refinery is supply chain trading.
An OTC derivative where one party pays a fixed price and receives a floating market price (or vice versa).
Swaps are among the most common hedging tools in commodity trading.
A trader enters a swap paying fixed $75 Brent and receiving floating monthly Brent average.
A contractual provision, common in gas and LNG trading, where the buyer must either take delivery of a minimum quantity or pay a penalty. Take-or-pay clauses are critical in long-term commodity supply agreements.
Take-or-pay obligations can create significant financial exposure if demand falls below contracted volumes, making accurate demand forecasting critical.
An LNG buyer with a 3 million tonne/year take-or-pay obligation must pay even if their domestic demand drops to 2 million tonnes.
A long-term agreement to supply commodities over months or years, often used in LNG, gas, and refined products.
Term contracts provide stability for buyers and sellers and support investment planning.
A 5-year LNG supply contract linked to Henry Hub pricing.
The process of recording commodity trade details into a trading system — including counterparty, commodity, quantity, pricing, delivery terms, and all contractual details.
Accurate trade capture is the foundation of all downstream CTRM processes including risk management, settlement, and reporting.
A trader books a Brent swap into the CTRM system, which automatically generates risk exposure, settlement schedules, and regulatory reports.
A document that formally confirms the agreed trade details such as volume, pricing, delivery, and payment terms.
Trade confirmations reduce disputes and are essential for audit and compliance.
After an OTC swap is agreed, a confirmation is issued and signed by both parties.
Europe's largest natural gas trading hub and benchmark reference price.
TTF is central to European gas markets and influences global LNG flows.
European LNG cargoes are often priced as TTF + premium.
The benchmark or asset referenced by a derivative contract.
Derivative pricing depends on the underlying commodity market.
A Brent call option has Brent crude as the underlying commodity.
Gains or losses on open positions that have not been closed.
Unrealized P&L impacts risk limits, reporting, and margin requirements.
A trader holding a long oil position sees unrealized gains as prices rise.
A statistical measure of the potential loss in value of a commodity trading portfolio over a defined time period for a given confidence interval. VaR is the most widely used risk metric in commodity trading.
VaR provides a single number summary of portfolio risk, enabling risk managers to set limits, allocate capital, and compare risk across different commodity books.
A 1-day 99% VaR of $2 million means there is a 1% chance the portfolio could lose more than $2 million in a single day.
The process of assigning a vessel to lift a cargo, including confirming vessel name, ETA, and compatibility.
Incorrect vessel nomination can cause delays, disputes, and demurrage.
A seller nominates a VLCC vessel for crude oil loading in Ras Tanura.
The degree of price fluctuation in a commodity market over time.
Volatility drives option premiums and influences hedging strategies.
Gas markets tend to be more volatile than crude oil due to seasonal demand.
Proof of commodity ownership stored in a certified warehouse.
Warehouse receipts are critical in metals trading and collateral financing.
Copper stored in an LME-approved warehouse is represented by a warehouse receipt.
A standardized freight rate system used in the tanker shipping industry. Freight rates are expressed as a percentage of a reference rate (WS100) for each shipping route.
Worldscale provides a common language for freight pricing, enabling comparison across routes and simplifying chartering negotiations.
A VLCC charter might be quoted at WS55, meaning 55% of the published Worldscale flat rate for that route.
A benchmark crude oil price reference primarily used in the United States.
WTI is heavily traded on NYMEX and is one of the world's most liquid crude benchmarks.
US crude contracts are often priced against WTI.
Valuation adjustments applied to derivatives to reflect real-world costs such as credit risk and funding. Common XVA types include CVA (Credit Valuation Adjustment), DVA (Debt Valuation Adjustment), and FVA (Funding Valuation Adjustment).
XVA affects derivative pricing and profitability, especially in large OTC portfolios.
A bank charges an additional spread to cover CVA when trading with a risky counterparty.
A curve showing interest rates across different maturities, used for discounting future cash flows.
Commodity trading firms use yield curves to value forward contracts and calculate financing costs.
A trader discounts future settlement payments using a USD yield curve.
A statistical measure used to identify abnormal price movements relative to historical averages.
Z-scores help detect price anomalies and are useful in quantitative trading and risk monitoring.
If crude prices jump unusually high compared to historical volatility, a Z-score may trigger a risk alert.
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