Spot, day-ahead and intraday: mastering Europe’s short-term power markets

The anatomy of short-term power markets

The European power market operates through a series of markets over time, each with its own purpose and timeframe. Traders usually transition from forward contracts that cover weeks, months, or even years, to the short-term market as delivery nears.

The sequence can be summarised as follows:

• Forward and futures markets: long-term hedging and portfolio positioning.

• Day-ahead auctions: setting the benchmark price for the following day.

• Intraday trading: continuous adjustment to new information.

• Balancing markets: system operators’ last resort to maintain grid stability.

The short-term segment, which includes spot, day-ahead, and intraday trading, is managed by important market operators: EPEX Spot (serving Central Western Europe and parts of Scandinavia), Nord Pool (covering the Nordics and Baltics), and N2EX (the UK power market). Thanks to market coupling, these exchanges work together to synchronise prices across connected zones, helping power move smoothly from lower-priced to higher-priced areas until the capacity of interconnectors is fully utilised.

This combined framework has established one of the most liquid and transparent short-term markets worldwide. Still, it also requires quick execution, precise data, and a thorough understanding of how fundamentals influence prices.

Day-ahead auctions: where fundamentals meet forecasts

The day-ahead auction plays a crucial role in determining European prices. Every day, traders place bids and offers for hourly and increasing 15-minute slots for the next day. The exchanges then determine a market-clearing price where supply and demand intersect, establishing the flows between bidding zones.

This process reflects a blend of market fundamentals and forecasts. Participants rely on:

• Generation forecasts: including wind, solar, and thermal availability.

• Demand projections: influenced by temperature, industrial activity, and calendar effects.

• Cross-zonal capacity allocations: which determine interconnector flows.

Since these inputs are mostly predictable before real-time operations, the day-ahead market gives us the best estimate of “fair value” based on the information we have. However, even small changes in weather, demand, or plant availability can quickly make these forecasts outdated, opening up new opportunities in the next step: the intraday market.

Intraday and continuous trading: reacting to new information

If the day-ahead auction reflects what everyone expects, the intraday market is where reactions come into play. With continuous trading platforms, participants can buy and sell power right up until the gate closes - sometimes just five minutes before delivery in some markets. This setup offers flexibility and keeps the trading lively right up to the last moment.

Real-time data drives this market:

• Weather revisions can alter expected wind or solar output.

• Plant outages or deratings can tighten supply suddenly.

• Updated imbalance forecasts provide early signals of market tightness.

Market coupling opens up the exciting possibility for traders to operate across borders. Shared order books help facilitate the flow of orders between national exchanges, making it easier for traders in France, Germany, or the Nordics to buy and sell power smoothly, up until the limits of interconnectors are reached.

Intraday traders often rely on this structure to seize short-term price differences, like those between lower midday solar prices and higher evening ramp-up prices, or to balance physical imbalances. Success depends on quick action, automation, and well-integrated data, as liquidity can change quickly across various products and regions.

Managing imbalance risk and capturing spreads

Even with efficient day-ahead and intraday trading, imbalance risk remains a challenge for dispatch teams and short-term traders. Balancing markets, managed by transmission system operators (TSOs), help keep the system stable in real-time. Participants who stray from their planned schedules are settled at an imbalance price, covering the costs involved in balancing the system.

The cost of imbalance varies between countries, but typically penalises those who are “out of balance” when the system is short or long. Effective management of this risk requires:

• Accurate forecasting of generation and demand.

• Continuous monitoring of intraday spreads.

• Strategic trading between auction and continuous markets to reduce exposure.

Arbitrage opportunities can arise when day-ahead prices differ significantly from intraday or balancing prices. For example, if wind forecasts suddenly worsen, the intraday market might jump, giving an early boost to traders who spotted the change. Likewise, negative price events can create chances to take in excess supply or adjust portfolios affordably.

Regional insights: UK, DACH, Nordics

Although the European market is becoming more harmonised, regional differences still influence trading strategies and liquidity profiles.

• United Kingdom (N2EX): The UK employs a hybrid system with notable participation in both auctions and continuous trading. Its gate closure occurs one hour before delivery, and a single imbalance price results in a concentrated final trading hour. Liquidity is robust around system peaks, highlighting the significance of flexible generation and interconnectors.

• The DACH region (Germany, Austria, Switzerland): features some of Europe's most liquid intraday markets, with EPEX Spot providing near-continuous trading. Gate closures can be as brief as five minutes, which facilitates high-frequency trading and algorithmic strategies. Weather-related volatility, particularly from wind power, has a significant influence on spread variations.

• Nordics (Nord Pool): Hydro power largely drives supply, so volatility heavily relies on reservoir levels and rainfall patterns. The market’s multiple bidding zones, frequent congestion, and interaction with continental Europe lead to complex price spreads and strong regional dynamics.

These nuances imply that although the principles of liquidity, price spreads, and market coupling are generally applicable, the strategies for succeeding in each market are specific to local conditions.

Conclusion

The short-term power market is where fundamentals translate into prices - and where data, discipline, and speed make the difference.

Day-ahead auctions establish reference prices based on forecasts, while intraday and balancing markets favour those who can quickly interpret new information over their competitors. In a setting where renewable variability, interconnector flows, and weather data continuously change market dynamics, intraday trading has become essential rather than optional.

Europe’s short-term markets are intricate yet becoming increasingly transparent, offering ample liquidity and opportunities for trading. By understanding their structure, from EPEX Spot to Nord Pool and N2EX, traders not only improve their competitive edge but also gain a deeper insight into how power systems operate in real-time.