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Identify risks before they become problems
With changing regulations and increasingly volatile commodity markets, risk officers across all industries need a complete view of their exposures and the underlying factors driving risk to ensure business resiliency. To thrive in today’s unpredictable commodity markets, companies need to identify potential threats early, proactively defend against them, and quickly adapt to disruptions. Simultaneously, risk officers and managers must protect their portfolio’s profits through properly structured hedges that comply with appropriate regulatory measures and accounting standards.
Financial hedging can bring stability and predictability to the earnings of physical transactions. Through financial derivative instruments—such as forwards, futures, options, and swaps—commodity trading firms can offset the risk of adverse price movements to protect the P&L of their physical positions. Commodity producers also utilize financial hedging to lock in prices of their physical products ahead of harvest via futures. By securing a price, producers can cover their costs and expected margins to guarantee a minimum profit for their physical product.
Commodity firms often look to avoid the negative impacts of price volatility by using the same underlying price, with different basis, on both purchases and sales. While this reduces the impact of price volatility, it introduces supply chain risk. To mitigate the effects of supply and demand imbalances, commodity firms rely on effective scheduling, storage, and inventory management. By building flexibility into their supply chains, they can optimize their physical assets to avoid the negative consequences of supply and demand imbalances.
Commodity trading firms often have separate teams managing various commodities across different regions. This introduces vulnerabilities that can go unnoticed when only managing risk at the book level. By consolidating physical and financial positions across the entire enterprise, firms can expose the risks associated with being overly dependent on certain counterparties and operational areas for supply, sales, logistics, and storage. This tactic also identifies natural hedges between asset classes and currencies, reducing the need for additional risk management efforts.
Risk management solutions for every company
Your business’ success relies on your ability to manage exposures and risk across the enterprise and optimally hedge using a consistent methodology during times of market volatility. ION’s commodity trading and risk management solutions provide innovative portfolio evaluation tools so you can ensure business control. Start your journey for improved risk mitigation with one of our risk management and analytics solutions.
A customizable, industry-leading CTRM for utilities and energy companies.
A multi-tenant, SaaS CTRM for liquid hydrocarbons and metals traders moving off spreadsheets.
A web-based solution to measure, manage, and mitigate counterparty risk proactively.
A suite of leading portfolio risk analytics and asset optimization tools for decision support.
A comprehensive, multi-commodity CTRM for industry leaders operating at scale.
A CTRM with robust scheduling and logistics capabilities for liquid hydrocarbon companies.
An out-of-the-box, multi-commodity CTRM with configurable functionality.
A derivatives analyzer and toolkit to design and assess hedge effectiveness.