Position Aggregation and Delta Exposure

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Before you can trade profitably, manage risk, or calculate P&L, you need to answer a deceptively simple question: What do I have?

Not approximately. Not "mostly gas." Exactly what you own, what you owe, when it delivers, and whether it's hedged.

Position management is the foundation beneath everything else in energy trading. Get this wrong, and every calculation downstream - P&L, VaR, margin requirements, delivery nominations - is wrong too.

This guide teaches you how positions work from first principles. You'll learn why energy trading positions aren't like equities (where you can net anything denominated in the same currency) - they require precise matching on commodity type, delivery period, and book classification. A position in NBP gas for January is completely different from TTF gas for January, or NBP gas for February. Mix them, and you're adding apples to oranges.

You'll start with signed quantities - the simplest concept that makes everything else possible. Buy = positive (+100 MWh), Sell = negative (-100 MWh). This converts every trade into a number you can add. Position aggregation becomes simple arithmetic: sum signed quantities, grouped by Commodity + Delivery Period + Book. That's the universal rule, whether you're working with sophisticated ETRM systems, building custom Python tools, or reconciling positions manually in Excel.

The guide introduces a reference portfolio of 6 trades - gas and power, physical and financial, January and February delivery. You'll use this same portfolio throughout, processing it through different lenses. First, you'll separate physical positions (delivery obligations - can you meet your commitments?) from financial positions (price hedges - have you locked in prices?). This split reveals different types of risk: operational risk (can you physically deliver?) versus market risk (are you exposed to price moves?).

Then you'll learn delta exposure - the unhedged risk that determines whether you're betting on price rises or falls. Delta = Physical + Financial. If you're +1,500 MWh physical and -1,000 MWh financial, your delta is +500 MWh. You're long. If prices rise £5/MWh, you've made £2,500. If they fall, you've lost it. Delta tells you which way you're exposed, whether you intended it or not.

You'll calculate hedge ratios - what percentage of your physical exposure is covered by financial hedges. Trading firms use hedge ratios to enforce risk policies: if you're 67% hedged when policy mandates 80%, you're breaching limits. Hedge ratios turn vague concepts like "adequately hedged" into precise, measurable metrics.

The guide covers why the aggregation rule (Commodity + Delivery + Book) is non-negotiable. Mixing commodities (NBP vs TTF gas) nets positions across different markets with different prices. Ignoring delivery periods (January vs February) combines obligations that settle at different times. Misclassifying books (physical vs financial) hides the operational risk beneath aggregate numbers.

You'll see how the same portfolio can look completely different depending on how you aggregate it. A +200 MWh net position looks balanced - until you split by book and discover you're +1,500 MWh physical and -1,300 MWh financial. Suddenly you have a massive delivery obligation with inadequate hedges. The total position didn't lie, but it hid the real risk.

The guide includes a Python implementation - a position engine that takes trade data and calculates positions, book splits, delta exposure, and hedge ratios. This is the foundation every trading system uses, regardless of vendor or complexity. Master this, and you understand what's happening behind every position report you'll ever see.

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How This Fits the Curriculum

This guide is foundational. You cannot calculate P&L without positions. You cannot optimize spark spreads without knowing your generation positions. You cannot manage storage without tracking injection and withdrawal positions. Every subsequent topic assumes you understand position mechanics. This is where the mathematics of energy trading begins.

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Prerequisites

Complete the Physical Foundations guide first. You need to understand commodity types (gas vs power), delivery periods (day-ahead vs forward), and why physical delivery obligations matter.

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Mastery Tip

After completing Section 3, recreate the 6-trade reference portfolio in Excel or Python. Start with trade data (Trade ID, Action, Commodity, Quantity, Delivery, Book). Apply signed quantities. Aggregate by the three-key rule. Split physical from financial. Calculate delta and hedge ratios. Then modify one trade - change a Buy to a Sell, or move a trade from Physical to Financial - and watch how delta and hedge ratios respond. The sensitivity will become intuitive, not theoretical. When you can predict the impact before running the calculation, you've internalized position mechanics.

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