Spot and intraday optimisation: how traders monetise volatility

This blog explains how spot and intraday markets operate, what drives volatility, and how traders develop strategies to capitalise on the transition from auction to continuous trading. The emphasis is practical, covering timeframes, order books, forecast deltas, and risk management, highlighting what matters at the desk when markets fluctuate.

How spot and intraday markets work

Spot and intraday markets both aim to match short-term supply and demand, but they function differently. The day-ahead auction sets a single clearing price for each delivery period based on bids and offers. Following this, price formation persists in intraday markets, where traders adjust to changing forecasts and real-time conditions.

Timelines from day-ahead auction to intraday gate closure vary by region, but the basic sequence remains the same:

• Day-ahead auction clears delivery periods

• Continuous order book trading begins

• Intraday auctions may run in parallel

• Gate closure approaches as delivery nears

The distinction between auction clearing and continuous trading is essential. Auctions are one-time events that determine a single price and volume, while continuous trading permits:

• Streaming quotes

• Market depth visibility

• Trade execution at marginal price levels

Regional structures influence liquidity and opportunities. EPEX intraday markets across continental Europe are recognised for narrow spreads and substantial depth. Nord Pool intraday offers flexibility for hydro-dependent systems. In the UK, N2EX provides the reference for auctions, while the Balancing Mechanism introduces a second layer where imbalance prices mirror physical system conditions.

The interaction between these markets creates the landscape for intraday power trading.

What creates intraday volatility

Intraday volatility indicates uncertainty. Renewable forecasts are never completely accurate, outages can happen at any time, and cross-border flows respond to fluctuating price gaps. While the most common drivers are well known, they remain difficult to predict precisely.

Revisions to renewables forecasts are the main cause of daily market volatility. Sudden changes in wind speeds can instantly change the price of a delivery hour from negative to over triple digits positive. Likewise, abrupt cloud cover can quickly eliminate solar output before markets have a chance to adjust. These movements offer opportunities for traders who hold positions before, during, or after forecast updates.

Unit outages and REMIT notifications also cause prices to shift rapidly. A single unplanned outage can drive intraday prices several times higher than the auction reference. Traders monitoring plant status, interconnector flows, and real-time balancing actions can anticipate price movements.

Cross-border congestion plays a significant role too. When transmission capacity drops or regional prices differ, flow patterns shift and spreads widen. Additionally, demand shocks, such as cold mornings, industrial restarts, or unexpected ramping, lead to price fluctuations.

The main pattern is straightforward: volatility always occurs when new information emerges after a consensus has been formed.

Trading the auction-to-continuous spread

Day-ahead prices are generally regarded as consensus forecasts. They reflect the collective opinion of participants based on data available before the auction concludes. Once the market enters intraday trading, continuous trading incorporates new information as it becomes available.

• updated renewable models

• weather forecast revisions

• unplanned outages

• changed cross-border flows

The auction-to-continuous spread is therefore a significant source of value. Traders buy or sell based on expected deviations between the day-ahead price and the evolving intraday price curve.

Common spread patterns include:

• Morning delivery periods, where wind often rises into the day

• Evening ramps, where demand peaks and solar disappears

• Weekday versus weekend structures, where industrial activity varies

For experienced intraday power trading teams, spreads are not random: they follow weather, system conditions, and behavioural patterns.

Using forecast deltas as trading signals

One of the most practical tools used on intraday desks is the delta method. Instead of trading the absolute forecast, traders concentrate on changes. A significant shift in renewable expectations, even if still low in absolute terms, can influence the order book in one direction.

The method has three principles:

1. Trade the change, not the level

2. Link forecast revisions to the expected direction of flow

3. Adjust position sizing by liquidity

Forecast deltas influence prices when the order book is sparse. In high-wind systems, a surprise upward revision can trigger aggressive selling; in calm conditions, a downward revision may reverse that dynamic.

This method is most effective when liquidity enables smooth execution. However, in saturated markets or under capped conditions - such as price floors or negative-price situations - deltas might not signal accurately. Additionally, very low liquidity can cause price movements that overstate fundamentals.

Desk analysts often combine:

• weather forecast changes

• historical price responsiveness

• time-to-delivery effects

This provides a precise probability estimate: how likely is the price to move, and by how much, based on the size of the delta?

Best practices for intraday risk control

Volatility offers opportunity but also brings risk. Successful intraday traders regard risk management as integral to their strategy, not as an afterthought. Since price movements can occur swiftly near delivery, managing exposure is as crucial as identifying signals.

The most effective practices include:

• Position limits linked to time-to-delivery, tightening as gate closure approaches

• Liquidity-weighted sizing, where order size reflects depth on each side of the book

• Stop-loss logic that adapts to nonlinear price spikes rather than fixed points

Intraday traders rely on clear escalation rules. When conditions change, they review their positions immediately rather than waiting until the end of a period. As delivery approaches, system imbalances become stronger drivers of price, so risk rises even when volumes decrease.

This structured approach helps traders avoid being caught on the wrong side of sudden volatility. The aim is to take part in price movements while steering clear of excessive losses when conditions turn around.

Conclusion

The rise of intraday power trading exemplifies a wider change in energy markets. As renewables bring uncertainty, this leads to increased volatility. Traders who grasp market structures, spanning from the day-ahead auction through continuous trading and to the final balancing stage, are better positioned to profit from price fluctuations.

Success in intraday trading isn't just about speed. It's about having a structure: clear timelines, forecast models, position limits, and order book discipline. The most profitable desks trade based on new information with confidence while managing risk. Volatility offers opportunities, but only when combined with control.

Intraday success ultimately depends on speed and structure, capturing volatility without becoming ensnared by it.