The concept of trading has had quite a transformation with time. Even as trading in the broader sense means buying and selling of commodities, if you look at the concept in the ‘90s and compare it to how it functions in the present day, the changes in the process are phenomenal. The trading landscape has become less ecclesiastical and more egalitarian, owing to the emergence of developments in logistics, communications and supply chain technologies.
And that’s where we traverse to the volatile world of energy where several organizations still rely on spreadsheets put together after a great deal of effort to manage their front and back-end processes. This brings us to how Energy Trade and Risk Management (ETRM), a subcategory of Commodity Trading and Risk Management (CTRM)—software solutions that support the trading and risk management of commodities by providing tools that support business processes associated with trading energy commodities such as crude oil, refined products, natural gas, NGLs, electric power and so on—which emerged around two decades ago, have helped increase productivity and return on investments. All this, even as they provide flexibility and a decision support system because they are powerful analytical tools that make deployment of duties and responsibilities easy.
The ETRM’s initial functions were to automate tasks that were both complex and routine while ensuring costly errors were reduced, manual processes were eliminated and efficiency was increased alongside minimizing of operational risks.
Despite being a part of the broader wholesale energy trading application landscape for over two decades now, the present day systems with cutting-edge technology have become capable of delivering more functionality than before. The recent developments like web-enabled or cloud-based ETRM solutions have made it easier to reduce implementation timeframes alongside becoming more economical. Even as the modern ETRM system supports a trade processing framework that is able to reduce manual intervention, it is also capable of minimizing errors and enhance transparency. This will eventually lead to better decision making that could facilitate surviving in a competitive sphere of work.
With easy data exchange made possible between trade floors, operations, credit, contract and accounting functions providing real-time data that is accurate and easily accessible, traders now have the ability to take advantage of multiple sources of data. These analytics are a game changer, and the automation, cloud services, and technology allow decision-makers to process information faster, thereby saving time in a quick-paced environment.
It has to be understood that CTRM and especially ETRM have not just revolutionized, but have also majorly reshaped the commodity trading industry. For instance, the ability of ETRM systems to store the enterprise’s data helps achieve consistency in terms of risk management, allowing the understanding of credit risks, and can also facilitate analysis of operational risks, cash flow risks and earnings at risks. Mapping the exposures, overlaying the market-derived statistics, modeling and generating results alongside determining the impact on business, the development of such frameworks helps underpin risk management frameworks. Moreover, a commodity-specific analysis is made possible for all the business users, offering the greatest in-depth solution on the market. Here, the integration of the enterprise resource planning (ERP) with the accounting systems becomes simplified as well as standardized.
Additionally, a benefit of using this digital system for traders would be the ability to set performance benchmarks amidst assets, thereby setting profit targets, streamlining profitability of contracts and compensation schemes. Here’s how: