Virtual transactions are used to arbitrage price differences between the day-ahead and real-time energy markets and hedge financial exposure from physical positions. A market participant takes a financial position in the day-ahead energy market by agreeing to buy or sell energy at a specific location that it then liquidates in the real-time market.

If the day-ahead price were higher than the real-time price, a trader would profit by submitting an increment offer (INC) to sell energy at the high day-ahead price and buy out of that position at the lower real-time price. Conversely, a decrement bid (DEC) would make money if the real-time price is higher.

An up-to congestion trade (UTC), used to arbitrage price spreads between geographical locations, is a bid in the day-ahead energy market to purchase congestion and losses between two points. UTCs based on the prevailing flow purchase positions on the day-ahead energy market congestion; those in the counterflow direction are paid to take a position.

Virtual transactions can benefit the market by providing price convergence between the day-ahead and real-time energy markets. However, by competing with physical resources in the day-ahead energy market, PJM says virtual transactions can affect the scheduling and dispatch of physical resources, contributing to uplift.