What is ETRM -Defined?
Energy Trading and Risk Management –ETRM definition- ETRM refers to the business processes associated with managing complex energy trades and/or portfolios of physical assets; from energy trade or position deal capture, to risk management, to deal settlement and invoicing. ETRM is the entire end-to-end process of managing the physical and financial trade or deal lifecycle of an energy position.
Robust ETRM provides organizations with a transparent view of their complex energy portfolios and their market positions (mark-to-market) and price exposures that can be both physical and financial in nature. Portfolio market exposures and the trades associated with them must be managed throughout the entire deal lifecycle as positions/trades are subject to market price movements. Therefore, companies with portfolio exposure to energy commodity price fluctuations will often institute an ETRM process or procedure for managing assets by instituting a commodity hedging program or risk management (ETRM) process.
ETRM processes are designed to manage the complexities associated with a portfolio postion, trade, market physical position or hedge, from deal capture to managing risk, to settlement to invoice the entire trade lifecycle must be managed. Entities with market exposure will break down these ETRM processes or trade lifecycle processes into distinct business functions called the front, middle and back-office ETRM process functions.
It is important to note that the physical side of energy commodity management or ETRM can be very complex and challenging to manage as various energy commodities are managed in various ways according to their transportation medium, from pipelines to big rigs all commodities and their transportation, scheduling, storage and delivery must be managed throughout the entire ETRM trade lifecycle. This is often where the complexities of ETRM become challenging to manage and where ETRM systems fail to meet unique business requirements.
What is CTRM –Defined? Commodity Trading and Risk Management- CTRM definition – CTRM is much like ETRM, however it usually relates to non-energy commodities such as grains, metals etc. CTRM supports the compound business processes associated with non-energy commodity products and it usually does not involve the physical management of the commodity. Speculation and hedging are major CTRM portfolio activities. CTRM provides organizations a transparent view of their complex commodity portfolios and their exposure or potential exposure to commodity price movements.
Entities with commodity market exposure will break down CTRM processes or trade lifecycle processes into distinct business functions called the front, middle and back-office CTRM process functions.