In a power market, there are two main parties: generators (fossil fuels, nuclear as well as sources such as wind turbines and solar panels that generate electricity) and consumers (from large industrial consumers of energy down to the household level).

Electricity is created at power stations (sometimes distributed ones) and then sold by energy suppliers to consumers. The buying and selling of electricity are known as power trading and take the form of contracts to buy and sell electricity. 

Power trading takes place on both short and long-term timeframes, the delivery of the energy can be over years to the same day. Generation and supply must satisfy the exact customer demand for each moment of the day. This makes it necessary that those operating on markets are prepared to buy or sell power to fill any unexpected gaps in their portfolios.

Factors such as exchange rates, cost, the availability of fuel, and changing regulations and policies all influence the price when trading electricity far in advance. The short-term price is more fundamental; factors like weather, news events, holidays, and even what's on television have a big impact on price. An example of this last one can be major sporting events like the world cup or the Superbowl; there can be a measurable impact on power markets as everyone turns off their television. 

Traders study live generation data and news reports to forecast how much power will be required during periods of high demand, and then set a price. Traders then make bids and offers to suppliers, agreeing on terms - these agreements then determine how and when a power station's generators are operated every day.

Electricity contracts can be made on an exchange or over the counter (OTC). An exchange is a marketplace where buyers and sellers come together to trade standardized contracts, such as futures and options. In the case of electricity contracts, the exchange acts as a middleman between buyers and sellers by standardizing the contract terms and facilitating the transaction. Buyers and sellers can place orders on the exchange's trading platform, which matches buyers and sellers based on the terms of their contracts.

On the other hand, OTC contracts are customized agreements between two parties. They are negotiated privately between the buyer and seller and are not traded on an exchange. OTC contracts can be more flexible than exchange-traded contracts because they are tailored to the specific needs of the parties involved. However, they may also be riskier because they lack the transparency and oversight provided by an exchange.

Power trading is a vital component of the electricity sector as it facilitates the exchange of electricity between power generators, major industrial consumers, and electricity retailers. To accurately forecast demand during peak periods, traders must analyze different sources of data in real-time to make informed bids and offers to suppliers. Ultimately, power trading ensures a consistent and dependable supply of electricity to end customers, making it an essential aspect of the energy industry.