The Death of Arbitrage Trading: How to Survive in the Information Age
By Callie Cady, Marketing Communications Manager
For years, commodity traders had a significant advantage on consumers and producers. Industry knowledge and trends were much more difficult to track, and commodity trading markets flourished. However, today’s story is drastically different.
Bloomberg Markets recently reported on the challenges commodity trade professionals are facing in the Information Age as technology and digital applications provide easy and real-time access to market changes, pricing and positioning. Arbitrage trading has become increasingly difficult as transparency in the market deepens, tipping the scale in favor of consumers and producers. As a result, traders are finding themselves searching for new ways to improve margins.
“The consumers and producers are trying to eat our lunch. So we [have] got to be smart about differentiating ourselves,” said Sunny Verghese, Chief Executive Officer of Olam International, Ltd.
Arbitrage trading’s decline in market advantage highlights the need for traders to become more involved in the supply chain by buying into infrastructure key to the production and distribution of raw material. Many commodity traders, like Vitol, are continuing infrastructure assets investments such as service stations, storage and refineries. Others, such as Mercuria, have taken to logistically complex trading by finding innovative ways to export supplies.
“The most valuable commodity out there is information, and the most useful information is the proprietary, critical information that you obtain from your own supply chain,” said John Driscoll, Chief Strategist at JTD Energy Services Pte. “You have to have skin in the game. You have to have access to assets, whether it’s infrastructure, terminals, vessels or refineries.”
While there are opportunities to become more agile in the market, commodity traders will face new risks and challenges. This is where implementing a commodity trade and risk management software (CTRM) that provides complete position visibility, regulatory compliance, controls and risk management can make a vast difference. Click the button below to learn how a CTRM can help you manage your commodity trading and risk in an ever changing market, and ultimately, your bottom line: