In 2015, China initiated a fresh wave of electricity market reform known as the “power-sale-side reform”, aiming to bring in competition in the link of power sales to lower electricity prices and stimulate economic growth. The power-sale-side reform has yielded substantial benefits, effectively reducing energy costs for power-consuming enterprises. However, the swift marketization of the electricity market has also amassed considerable risks, such as the nationwide power shortage in the latter half of 2021. In addition to external factors like fuel price fluctuations and supply-demand mismatch, the underlying causes can also be attributed to the trading mechanisms that came into being following the power-sale-side reform. Therefore, diving into price risk management from the perspective of trading mechanisms plays a crucial role in steadily advancing the electricity market reform.In the wake of the power-sale-side reform, the market has been primarily dominated by two types of companies: parasitic electricity retailers and independent electricity retailers. Parasitic electricity retailers are transformed from the marketing departments of power producers and are capable of procuring electricity at low costs. During the initial stage of the reform, parasitic electricity retailers were completely stripped from the parent companies in terms of business, financials, and more. So their costs could still be ascribed to the parent companies. This, in theory, made their marginal costs nearly negligible, affording them an absolute price edge in market competition. Independent electricity retailers are established with private capital investments. While they may lack a price advantage, they can offer users a variety of value-added services, such as energy conservation management and tailored electricity offerings, thereby lowering transaction costs for users procuring additional electricity services. In contrast, parasitic electricity retailers do not have the resources and teams to provide these value-added services, resulting in respective competitive strengths for both types of electricity retailers. In fact, the emergence of market entities with limited independence is quite common in the reform of numerous sectors. For instance, this phenomenon is observed in the separation of oil production and sales, the division of management and operation of natural gas pipeline network, and the segregation of power generation and distribution, which clearly hinders market-oriented reforms and even gives rise to market risks. Therefore, this paper will take into account the influence of parasitic electricity retailers on market equilibrium and explore measures to steer them out of the market.Sophisticated foreign electricity markets typically employ a blend of market systems and trading mechanisms to address price risks. For instance, within the market system of “medium and long-term markets + spot markets”, risks are regulated through medium and long-term electricity contracts, options, and futures. On the contrary, China′s electricity market system has not been well-established. Nevertheless, it remains feasible to manage price risks through market-oriented approaches. For instance, the widely employed contract for difference(CFD) is especially suitable for economic agreements with potentially significant risks. All that is needed is a reasonable design of these contracts. Consequently, this paper will use CFDs to improve existing medium and long-term electricity trading mechanisms and devise CFDs tailored to present electricity practice.Based on the current medium and long-term electricity trading, with the introduction of CFDs, the electricity volume in annual contracts is no longer physically carried out but is utilized as a post-settlement method. The monthly market will no longer trade electricity volume other than that specified in annual contracts and will instead trade the entire electricity volume for the current month. Given that the monthly market is closer to the execution of electricity volume, it can more accurately reflect the current costs of electricity, thereby passing on the costs to users. However, fluctuations in electricity prices can also bring risks to market entities. This is where CFD play a role in mitigating price risks. Therefore, the benchmark price for CFD can be selected as the monthly market price, with settlement taking place after the completion of monthly market transactions. Meanwhile, the participation of market entities in CFD involves a dynamic three-stage game process. In the first stage, power producers and electricity retailers negotiate and sign CFDs. In the second stage, the duo trades electricity in the monthly market to determine the traded electricity volume and price. In the third stage, the two types of electricity retailers compete in the electricity retail market. Hence, this paper will delve into the reasonable design of CFD and the regulation of parasitic electricity retailers by constructing a Stackelberg game model and a Rubinstein bargaining model.According to the research, 1) the emergence of parasitic electricity retailers enhances the risk resistance of power producers but diminishes the effectiveness of CFDs in risk management. 2) CFD can incentivize power producers to participate in the monthly market and reduce the market share of parasitic electricity retailers, thus encouraging their exit from the market. 3) The design of CFD proposed in this paper can improve market fairness and empower independent electricity retailers to better handle a wider spectrum of price risks as increased contracted electricity volume can bring down contracted electricity price. 4) Regulatory authorities can adjust market equilibrium through the proportion of contracted electricity volume and lower electricity prices in the context of market equilibrium.