Real-Time Risk Management for Commodity Traders

Timing has always been an important factor in commodity trading success, and in the current risk environment, moving fast is more critical than ever. Indeed, it is a necessity. But many risk managers still find themselves waiting—waiting for spreadsheets to be updated, waiting for end-of-day reports, and waiting for the full picture to emerge before they can act. Even with a CTRM system in place, many firms still rely on spreadsheets to fill in any functionality gaps. Spreadsheets can be a useful reporting and analytics tool, and are flexible and familiar, leading to the temptation to use them for managing CTRM work-arounds and trading processes. But using spreadsheets operationally can lead to many issues. They are prone to human error, lack audit trails and proper risk controls, and live outside the core system. The result is a fragmented view of risk, delayed insights, and time lost to administration such as copying information between systems and tracing and correcting errors. We find that many trading companies assume that spreadsheets are a necessary add-on to any CTRM, but this does not have to be the case. Particularly for organisations that have moved on from CTRM to full Commodity Management Systems, where deal capture, contracts, pricing & invoicing, and physical logistics all take place within the same system as risk management.

The Cost of Delayed Risk Visibility

When risk data is only available at the end of the day, risk managers struggle to react to today’s problems, let alone respond to new risks in real-time. That delay can have real consequences:

Missed opportunities to adjust positions in line with market moves and shocks.
Increased exposure to market, FX and credit risk, among others as well as losses as a result of not moving fast enough.
Unnecessary operational risk with compounded errors from manual data entry, version control issues, and poor visibility over whether processes have been followed. These can include real costs as a result of penalties or operational delays.
Reduced confidence in the accuracy and timeliness of reports, leading to even more lost time reconciling different systems and reports, and more decisions based on “gut feeling” rather than being data-driven.

With commodity markets moving faster than ever and a constantly evolving risk landscape, these inefficiencies leave commodity traders exposed and vulnerable.

Moving beyond CTRM and moving beyond spreadsheets

We are not advocating for trading companies to remove every spreadsheet from their organisation; these versatile tools certainly have their place, and Gen10’s CommOS can export data directly into management spreadsheets to provide the latest information from across the business. But calculating valuations or managing shipments in spreadsheets, particularly if this is to work around a limitation in your CTRM, creates risks that can no longer be ignored – especially when there are Commodity Management Systems out there that make these limitations a thing of the past. As opposed to traditional CTRM systems, which were created to report on trading activities that had already taken place, Commodity Management Systems are designed to bring all your business processes into one place. They integrate data from across the business; trading, logistics and finance teams all use the CMS to carry out their actual roles, generating the data that other teams and risk managers need. This provides a truly live picture of the real-world environment and gives risk managers a real-time view of risk throughout the day, with no need to wait for end of day reports or chase down traders to furnish an update. And with a well-integrated Commodity Management System like Gen10’s CommOS, you also avoid delays in translating data between systems, as integrations automatically update data between systems, too. That means no more manual reconciliation either.

A New Way Forward

If you’re a risk manager who’s frustrated by slow, error-prone reporting, it might be time to rethink what your systems should be doing for you. There is an alternative to delayed manual reporting, with all the risks this introduces. There are platforms out there, like Gen10’s CommOS, that are designed to reduce spreadsheet reliance and deliver truly live risk reporting. If your current setup leaves you reacting to yesterday’s data, it might be time to explore what real-time risk management could look like for your team.