What is the new trend in CTRM/ETRM?
Commodity trading comes with a wide range of risks, and in recent years, these risks have become more diverse and intense. Businesses involved in trading, procuring, consuming, or using commodities are now facing a broader array of challenges. Factors like commodity shortages, geopolitical tensions, stricter environmental regulations, and the ongoing effects of COVID-19 have all contributed to an increasingly complex risk environment. What used to be a primary focus on market or price risk is now just one part of the picture, with emerging risks such as credit, regulatory, legal, political, operational, liquidity, and others taking center stage.
While Commodity Trading and Risk Management (CTRM) software has evolved over time to help manage and track commodity transactions, these systems are often not fully equipped to address the wide range of risks outside of a company’s transaction portfolio. Even when they do, they tend to lack the advanced commodity-specific risk analytics needed and often rely on outdated overnight batch processing to calculate positions, leaving businesses with less timely insights.
Commodity trading has always come with risks, but lately, the number and complexity of these risks have grown significantly. What used to be mainly about market price fluctuations is now just one piece of the puzzle. The landscape has shifted dramatically with things like geopolitical instability, supply chain issues, environmental regulations, and the ongoing impacts of COVID-19. Today, commodity traders need to constantly monitor a much wider range of risks, including credit, regulatory, legal, operational, political, and liquidity risks—just to name a few.
Traditional Commodity Trading and Risk Management (CTRM) systems were designed to track and manage transactions, but they often fall short when it comes to handling the full spectrum of risks companies face now. While these systems have improved over the years, they’re still usually limited to transaction-level data and focus mainly on pricing. Many of them also rely on batch jobs that run overnight, meaning the data they provide is already outdated by the time decision-makers see it.
Here’s where things get tricky: The risks today are broader and more interconnected than ever before. For instance:
Credit Risk: With the volatility in markets, the risk that a counterparty might not fulfill their obligations is a huge concern, especially with defaults spreading quickly in a tight market.
Regulatory Risk: Governments worldwide are imposing more and more regulations, especially around environmental issues (like carbon emissions) or trade restrictions, and staying compliant is a major challenge.
Political Risk: Tensions between countries, changes in trade policies, or new sanctions can dramatically affect commodity prices and availability.
Operational Risk: Whether it's from supply chain disruptions, equipment failures, or cybersecurity threats, there’s a lot that can go wrong outside of pure market movements.
Liquidity Risk: The risk that you can’t enter or exit positions in the market when you need to, especially in a tight or disrupted market.
The problem is that many CTRM systems aren’t built to handle these kinds of risks. They’re often siloed, meaning they don’t integrate with the real-time market data or the broader risk environment. The result is that companies end up with incomplete or outdated information when they need it most.
There are new tools coming into the market that try to solve these issues—offering things like real-time risk analytics, scenario modeling, and stress testing. But even with these improvements, the challenge remains: Commodity firms need systems that can handle not just transactional data, but the full range of risks they’re facing today.
Do you think the biggest challenge is integrating these new risk management tools, or is it more about staying on top of the rapidly changing risks themselves?
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