Essential in CTRM: Physical position and mark to market - Agiboo

CTRM distinguishes itself from traditional ERP systems by providing mechanisms for a forward contract administration (derivatives and physical forwards) and valuation of traded assets with a constant changing price. For this reason it is essential to have access to two important views: Physical Position and Mark to Market (M2M).

Although many can have different definitions for a trading position, in general it is conceived to view two main trading categories. The first is to see if you are long or short for a physical delivery of a certain commodity. Obviously it is important to know the timing of such long or short as well. When physical contracts are priced they creates a price risk instantly and it is important to see whether certain (opposite) derivates are in place to hedge that risk. Thus the second important objective of a view on a trading position is a view detailing the long and short in derivatives. The latter regardless whetter these derivatives are used for hedging, price fixing or have a speculative character. The two views together are addressed as “Physical Position”, since it addresses longs and shorts in physical quantities.

Hedged or not hedged

Hedged or not hedged it is essential to follow the actual value of a commodity contract (asset) in relation to its market price. Here not only terminal market movements but also premiums sometimes called differentials are important and even the (anticipated) cost incurred on a physical contract to bring the contract to a marketable parity should be included. The calculation should disclose the value of the contracts versus the market value of contract: “Mark to Market”.

In Physical Position and Mark to Market all the complexity comes together; physical contract management, derivative contract management, cost accruals, premiums/differentials and market curves. Most CTRM solutions offer a physical position overview and/or a mark to market valuation on a report by report basis. There is an important limitation for such report where a report is by nature outdated it will almost never reflect accurately the last trade done or a sudden changed market or currency prices. For most CTRM solutions it is a challenge to make these views easy accessible and shape them in such a way that they can be easily understood and/or modified for individual use.

Our solution

Agiblocks CTRM offers these Physical Position and Mark to Market views, based on real time transaction and market data through interactive smart screens. In Agiblocks CTRM these screens can be customized on a company and/or a user level, allowing to adapt the information to individual requirements. Additionally these screens offer users the opportunity to drill down from the aggregated Physical Postion and Mark to Market into the underlying contract data.  Where these interactive screens can even be used on a tablet or phone, you are everywhere and always up-to-date and fully supported in making the right trading decisions.

Commodity trade and risk management

The Commodity Trade and Risk Management can be seen from three different views: TradingMarket and Risks.  

18 March 2020

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Commodity trade and risk management
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