The Hindu Business Line : Volatility in commodity markets may spur demand for risk tools

Mumbai, May 6 With rising volatility and heightened uncertainty in the commodity markets, commodity producers, consumers and traders worldwide have no choice but to adopt risk management practices.

This is expected to drive spend in risk management IT (information technology), according to a new report by independent market analyst Datamonitor.

Looking at how new entrants have changed the market dynamics and the technology responses of types of market participants, the report Technology Options in Commodity Trading, asserts that risk tools developed within financial services will provide the sophistication and responsiveness required to manage risk effectively.

The report also notes that commodities present their own unique characteristics that must be observed. As such, it will be fundamental for IT vendors looking to capitalise on the opportunity to have a full understanding and appreciation of the underlying physical market and of their potential clients business.

Commodity market dynamics have begun to draw increasing attention of not only commodity producers, consumers and traders, but also investors who perceive commodities as a new asset class.

Because some commodities outperformed several other assets in price performance recently, there is increasing interest in the former, especially from financial players without physical exposure to underlying commodities (in other words, speculative trade).

This is seen contributing to increased volatility which coupled with rise in algorithmic trading is causing risk management strategies to be re-evaluated in the light of breakdown of historical trends.

New levels of volatility in markets are demanding new risk and reporting solutions, the report has asserted.

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