Abstract Over the past few years, Micro Grids (MGs) have gained much popularity due to two-way communication in the power network with special emphasis on Distributed Energy Resources (DERs), which comprise of both Renewable Energy Sources (RESs) and Nonrenewable Energy Sources (NRESs). Currently, the main focus of researchers is to deal with the intermittent nature of RESs, which lead to the fluctuations in power production and dispatch. In this paper, direct energy trading among MGs is considered as an assuring solution for improving the grid stability, reducing power line losses and minimizing energy trading cost. The focus of this work is on energy transactions amongst multiple MGs within the same geographic region. In the proposed method, coalitions among MGs are made on the basis of the distance between them for energy transaction. Furthermore, an Energy Transaction Algorithm (ETA) is proposed for energy trading among MGs in the coalitions. Energy Storage System (ESS) is also integrated, which stores energy when an MG has surplus energy and utilizes the stored energy if it becomes energy deficient. Simulations are performed and the results demonstrate that energy transactions among MGs in the proposed method minimize the power line losses and energy trading cost up to 34.6% and 14%, respectively as compared to the existing method.