Part One: How modern trading platforms use AI to support daily decisions
To call A.I. the great big trend of the new year would be something of an insult to the last half decade. In fact, we’ve been talking about the ever-changing nature of the commodity trading industry pretty much since the launch of Agiblocks.
As artificial intelligence and the benefits of machine learning are finding their way into our customs and habits in all walks of life, it is becoming more commonplace in the commodity industry as well. In this update, we’d like to kick off a new series on AI in commodity trading and how we can wield these modern tools to our advantage, from better price forecasting and a clearer picture of market risks to taking the next step and improving supply chains.
In this first part, we’ll look at ways modern commodity trading platforms can use AI in their daily decision-making processes, ultimately improving the bottom line of their business.
Transformative powers
AI is transforming commodity trading “from a gut-feeling, human-driven game to one that’s powered by data, speed, and predictive modelling. It’s like giving traders a high-tech crystal ball that doesn’t just tell them the future but also makes decisions for them (while still letting them take credit for the good trades).” Or at least, that’s what an AI will tell you (it just did) if you ask it to talk about the impact of AI on the CTRM space.
Of course, the human factor in all that is yet to be bested and there’s probably no commodity trader worth their her salt out there who will stand idly by while a computer takes over their unique approach to our complex industry, let alone have an AI be in charge of a completely automated trading process. Having said that, there is of course something to be set for having that same AI assist you in your endeavours, in much the same way that you do your finances with a calculator rather than an abacus.
Let’s start with something we all face, every day, professionally as well as in our daily personal lives: information overload. Whether you’re trying to get through your work emails or simply deciding what to have for lunch as your attention is being grabbed by news media, your instagram feed or any of the numerous distractions your smartphone offers in pretty much a nonstop river of overstimulation, all while trying to understand your 10-year-old’s TikTok dance routine – we are all drowning in a sea of information.
The amount of data available specifically to traders today is staggering. But here’s the key question: how do you turn all that data into actionable insights? Think about a grain trader watching weather patterns in major producing regions, tracking vessel movements, and monitoring exchange rates – while trying to make sense of any of the leading market trends of the moment. Modern CTRM systems and their computational prowess don’t just collect this data; they help you make sense of it in order to help you navigate your decision-making at every step of the way.
Modern commodity trading platforms are leveraging AI in a variety of ways to support decision-making, as the technology is transforming the trading world. Last year, we’ve talked about 4 game-changers that AI might have in store for us, including reducing complexity and mitigating risk. Let’s now look at 4 examples where AI is already being used.
1. Predictive analytics for market trends
AI-powered predictive models analyze vast amounts of historical market data, including price fluctuations, supply-demand trends, geopolitical events, and even weather patterns. By processing all this data, AI can forecast future price movements for commodities that include agricultural products. Traders can use these insights to make better-informed decisions about when to enter or exit positions, minimizing risk and maximizing profits.
Agiblocks allows to administrate and manage different pricing types and methods and associated workflows in a unique easy to set structure. Within Agiblocks these different methods can even be combined in a single overview, allowing alerts and views on the consequences. In other words, it’s a single click to see how much still has to be fixed. Our software even allows for different methods for a single commodity when that is applicable.
2. Trading through algoritmes
Algoritmes: it’s not just for your preferences in Netflix anymore. Commodity traders are increasingly using AI algorithms to execute trades based on predetermined conditions, without human intervention. These algorithms can analyze vast datasets in real-time and execute buy or sell orders when specific thresholds are met, ensuring that trades happen in the most opportune moments, sometimes even before a human could even react.
Example: a trader sets an AI to buy cotton when it drops by 2% in a 24-hour period and sell when it gains 1%. The AI system continuously monitors the market, executes trades instantly when the conditions are met, and helps the trader make decisions without manually monitoring prices all day. There’s no fun in automation, but there is financial potential.
3. Risk Management with AI-driven models
AI can help commodity traders manage risk by building complex models that simulate various market scenarios. These models consider various factors, such as political instability, economic shifts, and environmental disasters, to assess how these events might impact the price of commodities. AI then generates risk reports, allowing traders to make decisions that align with their risk tolerance. In real-time, no less.How quickly can you assess your total exposure? With modern CTRM systems, you don’t have to imagine – you know exactly where you stand at any moment;
- Instant position updates as markets move
- Automated alerts when exposure limits are approached
- Quick scenario analysis for potential trades
- Real-time P&L calculations
AI-powered risk models might predict how a weather system could impact coffee production in Brazil, and how that, in turn, could cause price volatility. Traders can then hedge their positions or adjust their portfolios to mitigate risk based on this predictive insight.
In volatile markets, timing is everything. Prices can change drastically in just a matter of hours, which means any delay in information can lead to significant financial exposure. Agiblocks provides real-time updates on trading positions, allowing traders to make informed decisions instantly. It ensures they know their exact position at any given moment, helping them avoid overexposure or missing out on profitable opportunities.
Agiblocks also offers a transparent overview of the underlying contracts and deliveries that build up a particular position. This visibility into how positions are constructed helps traders understand their exposure comprehensively, reducing surprises and enhancing strategic decision-making. Another key aspect of position management is ensuring that exposure to market volatility is properly hedged. With Agiblocks, traders can easily monitor their futures positions alongside their physical positions, providing an integrated view that shows whether they are effectively hedged or need to adjust their strategies.
This capability is critical when dealing with volatile soft commodities, as it provides a safety net that allows traders to manage price risks more effectively.
4. Automated trade execution
AI systems in commodity trading can integrate multiple data points to automatically execute complex trade strategies based on real-time data. For example, an AI system could analyze commodity price trends, interest rates, economic reports, and weather conditions, and then execute a series of trades to implement a specific strategy (like arbitrage or trend-following) designed to maximize returns while mitigating risk. For instance, AI could spot an arbitrage opportunity where the price of corn futures is temporarily misaligned between two global markets due to a logistical disruption. The AI algorithm can automatically execute trades to capitalize on that price difference before the market corrects itself.
Agiblocks offers a CTRM solution designed by trade professionals, for trade professionals, to simplify their daily practices and make their fixed routine more efficient. Thanks to our various partnerships with specialists, that includes an excellent set of risk management tools as well. Yes, we have features like OTC contracts and What-If Analysis, but the possibilities stretch far beyond the calculations. Exposure modeling capabilities with sophisticated risk metrics enable prediction of performance volatility under complex market conditions. Add real-time VaR, stress testing to limit structure and option analytics to the mix, with a pinch of data ingestion and normalization, and the result is risk management through best-of-class data management in an intuitive and well-equipped data hub – that even allows for the easy integration of any other data solution you might use.
“We turned to Agiboo with a desire to establish a structured process to manage trades. We were after a seamless management of contract creation and approval process, as well as a structured management of trades and related logistics processes and document management – which is what we found in Agiblocks. Then there was the timely and enhanced reporting well as statistical reporting for analysis, which gave us a better understanding of our position for improved decision-making, in real-time to boot.” – Acalpo & Agiblocks: efficiency gains and improved logistics
Get started today – with Agiblocks
As the commodity trading landscape continues to evolve, it is not a question of whether or not you should embrace modern CTRM software solutions, but how to do it in a way that best serves your trading strategy. Because whatever your stance on AI, the future – of any trade – belongs to those who can adapt quickly, make informed decisions, and manage risk effectively. Better data makes for better decision-making. It is that simple.
Are you ready for what is next?
Agiblocks provides detailed features and functions, in many cases specialized for a certain commodity or commodity group, because capturing all underlying details is simply a necessity for success. At Agiboo we know you need to have all the relevant data, and it needs to be reliable so you can respond to the real situation. It needs to be supported by quality mechanisms, available in real-time and capturing everything from pricing/hedging to trading factors and specific functions and features. That is why we made sure Agiblocks is a commodity-specific CTRM solution: to match all the intricacies of your particular industry. Or, better yet, all the complexities of your daily routine. Now powered by AI enhancements.
If you’re interested in having our team demo the latest version, reach out to us here!
Upcoming in this series
– Better price forecasting: what AI actually delivers
– Spotting market risks earlier with AI tools
– Making supply chains work better with AI
– Getting started with AI in your trading business
– What’s coming next in trading technology
