Chapter III. The Basics of Trading
The goal of ETEI and this Handbook is to provide you with the "how-to" background that will empower your participation in cap and trade systems. The next two sections of the Handbook will introduce you to the basic tools of the market, and also provide information on how to use some of the advanced structures that are available. This section discusses trading basics, using the U.S. Acid Rain Program as an example, and describes how to participate in an emissions trading market using the basic tools of that market. It includes a discussion on compliance planning, market construction, execution of a basic trade, and settlement. The next section begins to explain some of the more advanced risk management tools available for portfolio management, such as forward settlements, swaps, option, and hybrid structures. It then gives one company's example of entering the SO2 market and transacting an emissions trade to demonstrate how some of these tools have been put to work in a real world situation.