Algorithmic Trading Wins in Volatile Energy Markets
November 25, 2019
We recently published a whitepaper reviewing the history artificial intelligence and exploring how powerful this technology can be for both individuals and businesses. One application for energy companies, algorithmic trading, is growing – and driving demand for modern ETRM systems to support it.
What is algorithmic trading?
Algorithmic trading takes trading decisions out of the hands of people and puts those decisions in the hands of algorithms. The algorithms can be simple models based on timing, price, or volume, or they can be advanced, complex mathematical formulas. Energy traders use algorithmic trading in short-term markets.
In algorithmic trading, computers receive market data, evaluate the data, place orders, and continue evaluating markets for new opportunities – all without human intervention. This enables faster trading because computers can evaluate opportunities and risk faster than humans can, and computers can execute trades with a speed and accuracy human traders cannot match. Computers also do not have emotions about trades, ensuring trading occurs based on facts and not feelings.
Increasingly volatile global energy markets – with countries reducing reliance on coal, the growth of renewables, and increasing demand for natural gas/LNG and other carbon-friendly fuels – require dynamic position management. This leads energy companies to trade in short-term markets, which are constantly changing. With market signals constantly changing, human traders cannot keep pace.
Algorithmic trading enables better position management because computers can analyze all available real-time data quickly. Computers can sift through an abundance of real-time market data in seconds, revealing opportunities, trends, and potential risks in energy markets around the world in seconds. The computer can generate trades based on these analyses immediately, generating profits at a speed and frequency that is impossible for human traders to achieve. Algorithmic trading decreases high personnel costs for 24/7 trading and reduces the risk of manual errors in placing orders.
Modern ETRM and algorithmic trading
Unlike legacy ETRM systems, modern ETRM takes advantage of the latest technology – cloud, mobile, AI, machine learning, blockchain, etc. – to aggregate data from across the entire value chain. Modern ETRM is cloud-based, modular, and flexible, enabling energy traders to monitor and control positions in real time.
Modern ETRM moves at the speed of markets, easily supporting algorithmic trading with superior trade management tools and ensuring profitable trading. Modern ETRM makes algorithmic-based trading a reality for all energy market participants, no matter how complex their requirements are. Energy traders can manage their entire energy supply chains on one platform.
- Get end-to-end coverage from upstream to contracts and gain a complete view of position, exposure and on-demand P&L.
- Manage large volumes of transactions while ensuring high system performance.
- Track cost components throughout the entire supply chain to better manage settlements.
- Get end-to-end management of exchange-traded and over-the-counter financial contracts in one system for hedging and speculation.
- Stay up-to-date on position exposure for physicals, derivatives and FX trades. Get real-time analysis of the potential impact of dynamic market prices.
- Analyze historical changes in P&L to spot trends and track performance by trader, books, and commodity.
- Manage complex scheduling from upstream to downstream. Drive more efficiency by tracking and optimizing movements across multiple modes of transport – pipeline, truck, rail, barge, and vessels.
If you want to trade smarter and faster, adopt a modern ETRM system and combine it with algorithmic trading. Make trades fast with the confidence of knowing the rest of your organization can keep up.
Mary DeFilippe spends her days creating engaging content – blogs, white papers, articles, and more – that helps readers better understand new technology. She can frequently be found walking around the office listening to heavy metal music while pondering ideas for her next blog.