Virtual Bidding

Virtual bidding is a trading strategy used in electricity markets where market participants can place bids on electricity prices in the day-ahead market without physically supplying or consuming electricity. It allows traders to profit from differences in electricity prices between the day-ahead and real-time markets. Virtual bidding enhances market efficiency by reducing price volatility and helping align day-ahead and real-time prices through arbitrage opportunities.

Example

A trader places a virtual bid to buy electricity in the day-ahead market at a lower price and sells it in the real-time market at a higher price, profiting from the price difference.

Key points

• A trading strategy in electricity markets involving bids in the day-ahead market without physical delivery.

• Allows traders to profit from price differences between day-ahead and real-time markets.

• Improves market efficiency by reducing price volatility and aligning prices across markets.

Quick Answers to Curious Questions

What is the purpose of virtual bidding in electricity markets?

It helps align day-ahead and real-time prices by allowing traders to profit from price discrepancies, leading to more efficient market operations.

How do traders profit from virtual bidding?

They place bids based on anticipated price differences between the day-ahead and real-time markets, earning profits from these price fluctuations.

Why is virtual bidding important for reducing price volatility in electricity markets?

By allowing arbitrage between day-ahead and real-time prices, virtual bidding helps stabilize prices and reduce volatility, improving market efficiency.