A subset of algorithmic trading, which is widely used in various financial markets, algorithmic energy trading is becoming increasingly relevant due to the dynamic nature of energy markets. Gas and power prices are influenced by factors such as supply and demand dynamics, weather conditions, regulatory changes, and geopolitical events. Algorithmic trading allows traders to respond quickly and systematically to these market changes, execute trades at high speeds, and manage risks more effectively.
Martin, your team has been developing algorithmic energy trading solutions since 2014; what do you see as the main challenges for gas traders today?
“Gas markets have grown more intricate and volatile due to factors like geopolitical events, regulatory changes, and the integration of renewable energy sources. These developments have made navigating the markets an increasingly complex exercise. Traders need to have an eye on a lot of data and different markets moving at the same time, and this is challenging the old ways of trading."
What are the benefits offered to energy traders by algorithmic trading?
“Algorithmic trading solutions allow traders to navigate the complexity of the gas markets by processing vast datasets and identifying patterns that may elude human analysis. Algorithms can also automate the simple and repetitive tasks traders must do on a daily basis, while observing the markets and making reliable decisions on behalf of the trader. Essentially, traders get their hands free from the repetitive tasks, allowing them to focus on more important topics like understanding the fundamentals in the market and shaping their trading strategy. Algorithmic trading helps traders to navigate through fast-moving markets that have many interconnections and interdependencies.
“From a purely operational perspective, a well-designed algo-trading solution also significantly reduces the risk of human error. Traders today have to operate with high concentration levels within a very stressful environment, which is bound to lead to occasional errors. When you treat your algorithm as your co-worker, it will do the clicking for you while you tell it where the best opportunities are.
“In some markets, manual trading almost isn’t possible anymore as the machines have taken over already. Specific prices move so fast that a human has no chance to click them on a trading screen. That means that the trader might be forced to accept the next best price - which probably isn’t the one that was aimed for. If you want to keep your competitive advantage as a trader, algorithmic trading helps you to play a more active role, especially in phases of high liquidity.”
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How do you see the future of gas trading and the use of algorithms going forward?
“Gas trading plays an important role in ensuring the transition to green energy. Until more green energy sources and storage options are in place, electricity generation from gas-fired power plants will play a crucial role in stabilising the system and providing flexible backup when energy is urgently needed. Looking further into the future, it will be exciting to see how green hydrogen will blend into the energy mix and influence the gas markets. However, at this point in time gas will without a doubt continue to play an important role in the European energy mix.
“The trading with algorithms in gas is still in its early days. There is an ongoing trend towards automation and configurable trading intelligence that eases the life of a trader. This development is not going away but is here to stay. I’m convinced that we will see many more developments in this area and that algorithmic trading in gas will play an essential role of the trading process as it is in power trading today.
"The future is exciting. As gas markets continue to transform, algorithmic trading will be essential. Traders leveraging these tools will not only be well equipped to navigate complexities but thrive in the evolving landscape as they gain and maintain a competitive edge.”