The yin and yang of volatile markets and modern trading solutions
April 15, 2019
A volatile market is a trader’s dream come true, an opportunity to make more profits. The good news is, the market-influencing events that used to happen once in every 50 years now occur more frequently, and leading market analysts predict they will increase. With the digital wave, trading strategies that used to work will no longer yield the same results. Information is not a closely guarded secret anymore, margins are tight, consolidation is rampant and tech disruptions are changing trading value chains.
So how does a trader maintain a competitive edge?
Navigating these new market conditions calls for a more intelligent approach. Traders must go beyond inflexible ERP systems and spreadsheets. They must make better decisions faster, decisions backed by data with real-time insights and not intuition based on previous day prices or end-of-day reports. With that in view, here are a few ways traders can stay on top of volatile markets with modern trading solutions.
How fast can you study the markets?
The very nature of commodity trading creates thousands of individual data points. Take, for example:
- Physical trades that are hedged with financial derivatives
- International supply chains with touch points in every continent
- An ecosystem of regulators, creditors, counterparties and contractors
Each piece of data generated in the trading value chain holds a key to profitability. But your data is trapped in multiple systems, swirling around in a nest of spreadsheets, disparate systems, applications, emails and sometimes even in scribbled notes on napkins. When an opportunity arises, traders find themselves scrambling to pull all their data into one place, but the market is moving too fast.
What traders need is a modern trading solution that is sophisticated enough to pull data from several sources and analyze this data in real time – be it market feeds, sensors, weather forecasts and more. Does your current set up let you aggregate report on demand? Remember, you are trading in fast moving markets, and you need to make fact-based decisions, real time.
Assess your risk appetite
Higher risks come with higher rewards, but as head of risk, you also need to have a risk threshold and uphold it. It is not uncommon for traders to breach risk thresholds when trading. For risk limits to work, an organization must have a suitable risk measure to calculate utilization of each risk limit on an ongoing basis. If you are an organization using multiple systems, you will have to set risk limits in each system or wherever your data resides. Also, most legacy systems provide limited flexibility with the number of risk measures that can be set up, forcing users to do the rest manually.
What businesses need is a solution that lets them set up any number of policies, regardless of data source, simultaneously across disparate systems and multiple portfolios. So when breaches happen, the users not only get notified in real-time, but are also able to drill down and understand the actual cause without spending too much time to sift through multiple reports, and take immediate corrective measures. The key tactic over here is to be able to assess breaches in real-time and not wait till EoD reports to take action.
Single source of truth
As businesses grow, they often implement solutions at each milestone to ‘plug the gap.’ These systems don’t talk to each other and over time extracting any information from this labyrinth becomes cumbersome, resulting in massive delays. At any given time, businesses need to have a clear understanding of the variables, risks, interdependencies and volatilities that affect their business. For example, risk teams relying on spreadsheets often end up storing different versions of the same spreadsheet. They lose valuable time identifying the right version of the spreadsheet before they can even begin analyzing it.
Wouldn’t it be nice if all your systems and data were connected and on cloud so you could pull any information you wanted from any system whenever you needed it? This is where a modern trading solution plays a key role, enabling commodity businesses to take advantage of lower deployment costs, increased scalability, improved security and on-demand advanced analytics. Cloud means connected data. Connected data means connected teams. And connected teams make the best decisions, together.
To be profitable in the new era of commodity trading and management, commodity businesses need a robust, digital commodity management platform. You need a system that fully incorporates the realities of uncertain markets, adapts to changing levels of volatility in real time, analyzes data from disparate sources and provides solid insights backed by data rather than gut instincts so you have every bit of information to help you make the best decision and move at the speed of markets. At Eka, we have already spent the time and effort to build it for you.
For more info get in touch with us at email@example.com
Sharmita Mandal is a communication professional whose day to day job involves taking complex concepts, breaking them down and articulating them using all kinds of mediums, be it videos, websites, brochures, blogs, tweets and everything else in between. Off work a pet parent and a foodie.