Investors don’t hesitate when it comes down to trading commodities because they represent a non-negligible way to diversify their portfolio. Despite the fact that the return from the commodities is lower as compared to that of bonds and equities winners exhibit significant earnings. Commodities have the tendency to move in the opposite direction of stocks, which is the reason why investors choose to rely on them during times of high volatility. If in the past buying and selling gas, metal, or energy required a great deal of time, effort, and expertise, now it’s a completely different story. To be more precise, there are numerous options to enter the commodities market and start trading.
Innovative technologies have been recently developed, drastically changing the way that the commodity market, as well as organizations functions. The multitrillion-dollar industry is going through what we would call a flawless digital makeover. Commodity firms and banks are moving faster to integrate a digital strategy in their planning and culture. Even though some part of the business is run on pen and paper, especially when it comes to trading agricultural products, the greater part of commodity trading is entering the age of digitalization.
Disruptive technologies shaping the future of the commodity market
SaaS applications in commodity trading and risk
All important businesses have a SaaS application nowadays. SaaS is an acronym and it stands for software as a service. What the software does is host applications in the cloud and make them available to customers over the Internet. More and more solutions are becoming available for commodity trading and risk management. Professionals no longer deploy spreadsheets for complex calculations so as to monitor and limit risk for trading books and hedging operations. It’s difficult, if not impossible to identify risks across multiple versions of spreadsheets manually.
Making the transition from spreadsheets to modern SaaS solutions makes perfect sense. Besides keeping data accuracy in check, it’s possible to control which users can enter or change data. The SaaS solution enables complex mathematical calculations, therefore, allowing users to gain business insight in real-time. Taking into consideration the regulatory tightening in terms of corporate governance and the shrinking lines of credit a web-based next-generation software like SaaS is more than welcomed. Typical business environments for SaaS applications in commodity trading and risk include trading companies and commodity processors.
Blockchain for Commodities
To put it simply, blockchain technology is a way of structuring data so that there’s no need for a central authority. Blockchain has captured the imagination of software providers and industry players alike in the past years. In particular, there has been substantial interest in blockchain for energy and commodity trading. Many are thrilled at the thought of saving a great deal of money in commodity trading by scrapping millions of paper documents and moving them to a digital equivalent. Adopting some sort of blockchain technology enables transactions to be carried out through a peer-to-peer computer network. The shift to electronic documents and data brings about many benefits, including new efficiencies, cost savings, and opportunities that can’t be achieved with paper records.
Commodity Traders are Waking up to Artificial Intelligence
There are strong connections between the world’s most traded commodities and the foreign exchange market. For example, the Canadian dollar is correlated to oil prices due to exports. Plus, China has a close relationship with gold prices. Investors should be very careful when choosing which currency and commodity relationships to trade. It’s recommended to do a little bit of research on commodity prices and how to trade them. It’s also recommended to take advantage of intelligent technologies such as artificial intelligence that can help increase profitability. Commodity traders should seek new ways to exploit information that helps them make profit from price swings.
Artificial intelligence automates tasks to reduce risks and increase profitability. Owing to artificial intelligence, it’s possible to analyze huge chunks of data using natural language processing and sentiment analysis. The result is a reliable forecast about the way in which the risks affect the market. The road to digitalization may not be easy, but it’s completely worth the effort. Indeed, artificial intelligence can solve targeted problems, but it’s the responsibility of the leader to identify applications that can provide the most value for intelligent operations. There is no shortage of new computing technologies, which is a good thing.
It’s not difficult to see that innovation has taken over the commodity market. The disruptive technologies that we have discussed earlier pose no kind of threat to existing solutions and applications. Even if customers aren’t necessarily expecting innovative products they keep on surging. They would rather try trusted products, which don’t present differences from seller to seller. This isn’t to say that all customers are against technological innovation. Millennials, which are taking over baby boomers as the largest generational cohort in the United States, are game-changers when it comes to the economy. Their increased need for innovation has led to the release of new, upgraded products.
Change is the Only Constant in the Commodity Market
To keep calm and carry on is almost impossible due to the COVID-19 pandemic. We’re living in times of change and, more often than not, change isn’t a good thing. The novel coronavirus has the power to affect trade flows and has an important effect on global prices. Nevertheless, it has taught us how to adapt and build resilience. Now, let’s talk about a change that is no doubt positive. Technological innovations have a considerable impact on the commodity market helping manage price risks and automating routine tasks. Those who didn’t pay attention to technical ideas are now eager to implement them to make progress.
All in all, firms and banks try to do more than simply being commodity producers. They make great efforts to introduce cutting-edge technologies in different kinds of activities, therefore, proving that they deserve their spot in the age of innovation. Despite some small obstacles, transformation is taking place and business models will change to keep people interested. What changes are there reserved for the future? Only time will tell.
What people are saying
This is one of the great articles.