The use of trading ‘bots’ (that is, systems for automated, rather than human, trading) dates back to late 1949, when Richard Donchian introduced the concept of an automated system with a set of rules to buy and sell funds. Nowadays, 80 % of the US stock market is managed by machines.
Meanwhile, the situation in the power markets is slightly different and the use of bots is more the exception than the rule. At least, for now.
Power markets or electricity markets are the platforms allowing the purchase and sale of electricity though bids. There are several types of electricity trading, including day-ahead and intraday.
In the day-ahead market, customers have a possibility to sell or buy energy for the next 24 hour day in a closed auction.
Intraday, on the other hand, is the continuous 24/7 market where trading takes place in real time. It allows for the adjusting of all buy- and sell orders made in the day-ahead market, to optimise trades or make better use of production/consumption that was not accepted in the day-ahead.
It is in the intraday market where trading bots are currently used the most, placing orders much as a human trader would.
How does it work?
In the case of Nord Pool, Europe’s leading power market, customers develop market data feed handlers and order submission gateways against Nord Pool’s API. Trading bots continuously observe incoming data on the feed handler and make automated decisions to submit an order to the exchange. The order might be fulfilled and in this case the bots adjust their trading positions. If the order is not fulfilled, the bots continue to observe how the market moves in real-time and automatically adjust the price of an order according to the market direction.
Why do companies need them?
The use of trading bots helps companies buy or sell large amounts of electricity effectively during a long period of time while observing multiple data sources: weather development from the relevant providers, power plant maintenance notifications, capacity on interconnectors in Europe and the exchange-provided market ticks, for example.
What about the future?
Energy markets are going in the direction of the financial markets where more-and-more trading activities are automated, and speed of position fulfillment becomes very important. For example, Nord Pool saw an increase of API trading by around 30 per cent during the past four years. As a result, software developers and QA engineers constantly experience a challenging working environment where they need to focus a lot on performance, high-availability and automatic-decision making algorithms.
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