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Ahead of Derivatives Forum Frankfurt, we spoke with Benjamin Eckert, Head of Brokerage at UniCredit and Enrico Piccin, Director of Derivatives Business Development at S&P Global Market Intelligence, to discuss key trends, market structure, and challenges for financial entrants to energy derivatives.
Over the past decade, the European gas and power market has seen significant changes, shaped by heightened volatility, new market participants and greater integration across markets. Trading activity is increasingly shifting onto exchanges, risk management practices are becoming more sophisticated, and a broader mix of participants is reshaping market dynamics. Together, these changes are moving European gas and power beyond its traditional, locally driven roots and toward a more standardized trading environment.
Trading activity in Europe
Three key trends are driving change in trading activity in European gas and power markets: the migration of plain vanilla activity from OTC to on exchange, a sharp increase in hedging activity following recent volatility and growing participation from hedge funds, proprietary trading firms and banks.
“What we see is a continuous trend of plain vanilla OTC business migrating through to the exchanges,” says Benjamin Eckert, Head of Brokerage at UniCredit. “Historically, the OTC market completely dominated energy trading, but that trend has been reversing over time.”
The shift is being driven in part by regulatory preferences for centrally cleared and transparent markets, as well as by participants’ hunt for capital efficiency. As more OTC flow becomes listed, exchange volumes continue to rise, creating a virtuous circle for liquidity.
At the same time, a wider variety of firms are hedging their energy needs following significant spikes in volatility over the past decade. “There is more and more awareness of hedging as an efficient way of managing future demand,” Eckert noted, adding that this trend has become particularly visible since the volatility shock triggered by the war in Ukraine.
Finally, the market is bringing onboard new participants. Hedge funds, proprietary trading firms and banks are steadily entering power markets, attracted by volatility and improving market depth. “There is a lot of interest from the investment community,” Eckert says. “While their activity still has room to grow, the development of the market and the increase in volumes is clearly driving that interest.”
Market structure: From fragmentation to integration
European power market structure has also undergone a period of consolidation over the past decade, which has increased efficiency and eased access. Power pricing on the continent remains inherently local, shaped by national generation mixes, grid constraints and domestic regulation. However, markets are becoming increasingly interconnected with more contracts traded on one venue, making it easier for participants to trade across regions.
“We’ve seen significant expansion across France, Spain, the Nordics and Central Europe,” says Eckert. “That geographic connection is stabilizing markets by increasing participation across borders.”
This integration has not eliminated local price dynamics, but it has made them more tradeable. Participants can now express views on country specific fundamentals, such as Polish coal exposure or Nordic hydro conditions, using exchange listed contracts, rather than relying solely on bilateral OTC agreements.
Growth in Central and Eastern Europe illustrates this shift. “EEX has seen for example the volumes in Hungarian power derivatives grow by 34% in 2025, while the European power derivatives volumes increased by about 11%,” Eckert notes. “Based on this growth dynamic we should by 2028 see more than half of the European power derivatives activity relating to non-German EU contracts. That shows how the integration into the wider European market can accelerate growth.”
Despite these gains, liquidity remains uneven across Europe. Activity varies significantly between markets such as Poland, France, the Nordics and Central Europe. This has pushed market participants towards concentrated activity in the most tradable contracts.
“What we have seen is that some operators are trying to trade more and more liquid products,” says Enrico Piccin, Director of Derivatives Business Development at S&P Global Market Intelligence. “This has been a trend over the last few years.”
While electricity continues to be priced and delivered locally, exchanges have made these markets more accessible by listing country-specific power contracts on the same trading platforms. This allows participants to trade individual national power markets using familiar, standardized tools, while engaging with local supply and demand dynamics. The end result is greater transparency and clearer price signals for firms.
“One of the main drivers is trying to increase the liquidity on both OTC and exchange markets, for sure,” Piccin said. “We are seeing more and more demand and liquidity for Nordics and East EU markets and volatility products.”
As markets mature, product sophistication is increasing. Different participant groups are driving demand for different instruments, reflecting their underlying exposure and capabilities.
“Banks and investment banks are typically trading more vanilla products such as futures, forwards, options and spreads,” says Piccin. “Energy utilities and trading houses, because they hold the assets and flexibility, are more active in structured products, swing options or storage-related instruments.”
Hedge funds, meanwhile, are gradually moving from simpler strategies into more complex areas. “We’re seeing hedge funds starting in more straightforward products and then moving into more complex gas and power derivatives,” says Piccin, though he noted that the lack of physical assets remains a constraint.
Challenges for financial entrants
Despite growing liquidity and sophistication, European gas and power markets continue to present structural challenges, particularly for newer financial entrants.
“The biggest difference is the physical nature of the underlying product,” says Eckert. “There is very limited storage capacity and contracts are designed around the needs of producers and consumers, with delivery broken down into very small time-windows as expiry approaches.”
This structure demands a deep understanding of physical constraints, grid dynamics and operational risk – areas where non-asset backed participants can face a steep learning curve.
Piccin supported this view, stating that while energy utilities can trade on the back of their assets, “hedge funds and banks don’t have that flexibility,” making it harder for them to engage in more complex products.
He points to a recent example of this ability to manage flexibility: During the gas price spikes in January 2026 and the inversion of summer/winter spread, energy houses with storage capabilities had a double opportunity to generate P&L. Firstly, by taking speculative positions to benefit from the price spike, and secondly through exercising storage optionality to capture extrinsic value from the spread inversion.
A further challenge lies in the market infrastructure itself. While exchanges have made significant efforts to modernize, they also try to keep the trading experience and technological set up close to what participants are already familiar with. “There has been a lot of effort from Deutsche Börse to maintain consistency” says Eckert. “Reducing entry barriers for established players in the derivatives market, while containing complexity for new entrants coming into power derivatives markets.”
The growing focus on Power Purchase Agreements (PPAs) highlights the increasing sophistication of European power markets. PPAs are long-term contracts under which electricity is sold at a pre-agreed price. They are widely used to secure predictable revenues for generation assets and provide buyers with long term price certainty.
As a result, PPAs have become a central instrument for managing long-term price risk and financing generation assets. However, their bespoke nature continues to limit transparency, liquidity and price discovery.
One of the key challenges today is developing products that help to make the market more transparent,” says Piccin, pointing to PPAs alongside structured products as areas where participants are seeking clearer benchmarks and consensus.
“Market makers and energy firms are increasingly looking for reference prices and consensus views to support valuation and risk management in PPAs. They are difficult to hedge and price due to the lack of observability and liquidity at the very long end of the forward curve.”
The expansion of related markets is reinforcing this trend. Eckert notes that trading in CO₂ certificates is set to increase, with these instruments migrating to listed and cleared venues and becoming eligible as collateral.
Together, greater PPA standardization and deeper integration of carbon markets are expected to improve capital efficiency and support broader participation across Europe’s evolving power markets.
Valuation, collateral and margining
Practices long established in financial derivatives markets, such as credit valuation adjustment (CVA) and broader XVA frameworks, are now being adapted to energy products, despite the market not having been originally designed for them.
“Valuation adjustment is a key focus for us,” says Piccin. “Energy markets are characterized by highly diverse counterparties, often with scarce credit data and no CDS observability.
“The absence of standard models for energy curves and XVA calibration, combined with physically delivered trades and embedded storage and transportation risks, leads to high modelling complexity. As a result, institutions value XVA very differently - creating inconsistency, opacity, and inefficiency - highlighting the need for a benchmark consensus.”
Exchanges and clearing houses are working to improve cross-product and cross-venue netting, recognizing the capital efficiencies this can unlock. However, the cyclical nature of energy markets presents unique challenges.
“Correlations that allow for efficient netting can break down in times of stress,” Eckert explains, warning that strategies that appear margin-efficient under normal conditions may quickly lose that efficiency when volatility spikes. As a result, both clearing houses and banks are taking a cautious approach to margining, adjusting requirements dynamically to manage systemic risk.
As valuation methodologies improve and collateral frameworks become more robust, European power markets are moving closer to the standards expected by global financial participants, while still accommodating the physical and operational realities that make energy trading distinct.
Visit the panel at Derivatives Forum Frankfurt on 25 February from 13:40-14:25 CET
Powering up: Opportunities in European Energy Derivatives
The increased diversification of participants in European energy and power derivatives markets has been a key trend in the market over the past five years. At the same time, volatility and market structure changes have brought new opportunities. This panel will explore the changing dynamics of the market and the key trends shaping the future.
Moderator: Will Mitting, Founder, Acuiti
Speakers:
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