Commodity trading software was created to provide an electronic platform that matches buyers and sellers of raw, unprocessed goods. Since inception, it has grown into a market of feature-rich, highly extendible systems. Numerous vendors compete to be able to service the billions of US dollars in commodities that trade daily through the software, including energy, food, metals, precious metals, and financial currencies. When choosing the best commodity trading software, your type of trading, volume of trading, and risk-management requirements are all important areas to take into consideration.
Physical market players, such as agricultural or energy producers, require a more complex system that keeps track of and seamlessly integrates physical, financial, logistics, and risk-management features. Traders sitting behind computers in Tokyo purchase oil from traders in New York over a shared trading platform with the click of a mouse. All aspects of the physical sale can be handled by an electronic platform, including the actual delivery of the commodity traded in the cash, or spot, market. Ensure your system also optimizes the costs and hedging of the shipping and storage of your commodity. Physical players also require the seamless integration of financial trading and risk management to hedge price risk related with the trading of commodities, as well as risks related to transportation and storage.
Both hedgers — also known as physical players — and speculators — also known as financial players — are demanding more robust financial functionality in commodity trading software to manage risks in financial trades, wherein buyers and sellers agree on the future sale of commodities at a predetermined price and date. The software should keep track of profits and losses on a real-time basis. Many systems also integrate foreign currency trading to allow traders to hedge foreign currency risk related to commodity sales.
The most important improvement to commodity trading software is added risk-management capabilities. Traders are demanding and getting stronger counterparty and credit risk screening functionality integrated with their trading platforms. Companies also want more transparency and tighter controls on their individual traders. The risk-taking of a number of maverick traders has been blamed for some of the most spectacular market losses. Seek a system with strong integration with the back office, where risk management policies and compliance are monitored.
Choose a commodity trading software vendor who is keeping pace with the breadth of new commodity product offerings. If you are trading energy, you may want to hedge palm oil or new carbon emissions instruments in the future. In the foreign exchange markets, Korea’s expanding over-the-counter swaps market may be of interest to you when your company starts to sell palm oil in Asia next year. Importantly, look for good cross commodity integration. The best vendors are the first to offer new products integrated with cross commodity pricing, charting, and modeling capabilities.
Commodity trading software should be strong on technical features. Seek comprehensive current and historical data feeds, a wide set of technical indicators, and the latest simulation models, such as those based on neural networks. Neural network technology — mapping the thought processes of the human brain — is becoming more sophisticated and usable. At the same time, choose an intuitive and easy-to-use interface.
Pure financial market players are often more interested in mapping the mind of the best traders to an algorithm than functionality when choosing a commodity trading system. While financial traders will continue to buy on the strength of proprietary research, charting, and trading pattern tools, caveat emptor. In an up market, there is always a surge in new proprietary commodity trading software to help you beat the market. Ensure your commodity trading software vendor is not just following the trend, but rather has a good record in both up and down markets.
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