New Agiblocks Features: OTC and What-If Analysis for Risk Management

We’ve said it just the other week in our report of CTW 2021; technological innovation – having new and improved features – is still an enormous part of choosing a CTRM solution. Tech in the market for CTRM software is booming once again. Moreover, the modern user wants to do much more portfolio analysis than they used too, while more and more is known about the complexity of derivates in the commodity trade. That’s why we’ve recently added two very interesting new features in Agiblocks: tools for both OTC contracts and What-If Analysis.

The importance of technology and architecture

Not too long ago, only the big firms could have it all in terms of scalability and flexibility of software solutions, as they had the time and resources to build their own platforms. Thanks to the modern approach of CTRMs as an ecosystem as well as the availability of cloud service, those previous luxuries are now commonplace.

Furthermore, Agiboo has decided years ago to migrate CTRM architecture to easily accessible cloud services, while platforms on client/server or need to seriously rewrite their software to keep up with the times. And while a lot of companies talk about the cloud, that usually just implies their systems are in the cloud and not on on-location servers. With Agiblocks, you can actually work form the cloud – you get to quickly keep up with developments and, more importantly, you can work from anywhere; at the office or on the road, at home, on any device that has a browser.

Anyway, the point here is that buyers are increasingly looking for the scalability and flexibility of the cloud. “The technology stack is becoming part of the selection criteria again,” as we’ve explained in an interview with Commodity Technology Advisory. “It is even rapidly become a high-priority item, while buyers know what technologies they want.”

Trends in risk management: OTC contracts

Another trend we’ve noted – as explained by Jan van den Brom in the same interview with Gary Vasey – is the number of firms moving into OTC contracts like accumulators for hedging purposes, and away from exchange-traded contracts. Which brings us now to the first of the two aforementioned improvements in Agiblocks: we have released a brand-new module to cater to the valuation of these types of contracts.

The market for physical agricultural commodities is an over-the-counter (OTC) market, where two parties enter into a contract to supply and purchase a commodity. The most common underlying assets are stocks, bonds, commodities, currencies, interest rates and market indices. Depending on where they are traded, derivatives can be classified as over-the-counter or exchange-traded. In many cases, these contracts are unique because they are designed to meet the specific needs of both parties.

However, a contract is not written from scratch for every single transaction. Usually, a standard contract from a leading company is used as the basis for an individual contract. Thus, a contract is relatively standard, except for certain aspects. Its value is determined by fluctuations in the underlying asset. An over-the-counter (OTC) contract is a financial contract that is arranged between two counterparties with minimal intermediation or regulation. They are quite complex, as there are no standard methods to evaluate them – they can be tailored to the needs of each party. Agiblocks can now help you do so.

Commodity trading is a volatile business that requires several types of data to be exchanged and confirmed, especially for OTC and physical markets. Yet, unlike the financial and tech sectors, the commodities back office is still slave to lengthy manual processes largely due to the myriad of complex data exchanged between counterparts – such as drawing up OTC contracts. We know, because Agiboo’s mission has been to reduce time-consuming labor for over a decade now. We’ve now taken another important step in battling that inefficiency.

What-If Analysis

As we’ve said, there are two major additions to the Agiblocks dashboard in terms of technological improvements that help traders oversee their portfolio and manage their risk. That second feature is the introduction of proper tools for what-if analysis.

A what-if or sensitivity analysis is a powerful decision-making tool that helps you to understand what kind of business impacts can arise from dynamically changing one or more variables, greatly assisting you in risk management decisions.

OTC contracts for instance, often represent huge underlying values. You can use our tools to understand how responsive output is to given changes, as the financial and logistical implications of outstanding contracts can be readily generated by shifting variables such as price, volume and supplier – providing valuable insight into managing, covering and insuring contracts to minimize risk and maximize profits.

As trade margins have decreased and oversight increased, keeping costs down and minimizing errors has naturally become the focus of many commodity-related firms. There are many, many different aspects to deal with all at once – ranging from physical commodities, commodity trading and speculative trading to commodity logistics and finance and risk management. We’ve got you covered with Agiblocks, our flagship CTRM solution.

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