Why Commodity Traders Are Losing Massive Money?

Through the years, commodity trading has gained enormous admiration as a great investment and flourishing industry. According to research, the global commodities marketplace is valued at over $20 trillion p.a. with crude oil worth $1.7 trillion, alone. However, given the complexities involved several commodity traders especially SMEs are at a high risk of trading errors and other business pitfalls, if underprepared.

In present times, cross-border issues, climatic conditions, supply chain volatility, and dynamic technologies have fuelled the intricacy of the commodities marketplace. Thus, resulting in an abundance of big data that demands round-the-clock analysis and promptness. While those investing in the right commodity management tools scale heights, SMEs often struggle to merely survive. In fact, around 80% to 95% of these commodity traders are victims to financial losses of one kind or another. So, why is it just that a marginal few are able to meet their goals?

Top Reasons Why Commodity Traders Face Financial Losses: 

Inaccurate Forecasting: Analytics is key to accurate forecasting in the fast-paced world of commodity trade. However, for most traders and risk managers grasping insightful information from multiple spreadsheets and physical documents swiftly, is beyond impossible. Absence of a centralised workflow system prevents key business teams from collaborating effectively, accessing up-to-date reports, and mitigating risks. In return, making it challenging for analysts, traders and risk managers to critically evaluate market trends and valuations for a thorough pre-trade analysis. Such inaccuracy in forecasting large price fluctuations or technological disruptions could cost your business a devasting loss.

Trade Hedging and Risk Analysis: Engaging in international trade requires additional caution and an a real-time ERP system that centralises multiple geographies. This is due to geopolitical, operational,

and multiple levels of credit risks involved. Fortunately, through advanced analytics commodity traders can view VaR calculations (Value-At-Risk), option valuations, and liquidity & counterparty exposure. Supply Chain Uncertainty: In 2019, over $150 billion losses were recorded worldwide due to natural calamities. Such massive losses and long recovery periods have urged commodity traders to rethink their supply chain strategies. Other risks associated with supply chains include, operational, price, regulatory, economic instability, and rising tariffs. To keep pace, it is important for commodity traders to deploy tools that centralise data across key areas, simplify supply chain logistics, and offer wider geographical forecasts.

Lack of Regulatory Compliance: According to research, the cost of incorporating a regulatory compliance has risen by 45% since 2011. However, businesses that fail to implement regulatory compliance due to the expenses involved, risk at losing much more. For instance, they are highly vulnerable to heavy productivity losses, lawsuits, penalties, and negative brand image. However, an advanced ERP can help ensure transactions are accurate, real-time, error-free, and aligned with geographical regulations.

Lack Of Research & Development: Mastering commodity trading can take years of practise. Hence, it is important to keep oneself updated on the latest success stories and gain access other learning tools. For instance, signing up for online courses, read books, or even engaging in other traders and experts through trading business forums.

To summarize, a comprehensive ERP can prevent your business from falling prey to the above pitfalls for financial losses. To gain expert advice on how Robo-commodity – the best ERP for commodity trading, can boost your business speak to us today!