The trading of energy commodities today hinges on three interrelated factors: situational awareness; risk management; and capitalising on opportunity. This is because data has changed the way the game is played. From the speed at which you receive a trading signal to the latest economic news, faster decision making is key to success (even if that decision is to hold).
The Need to Respond Faster
Technology innovations in the creation and sharing of data have disrupted trading desks over time. The difference in the current data economy is that it’s inextricably linked to the convergence of industry trends, breaking news and public opinion in a way that has never been possible before. A shift in consumer sentiment can destabilise confidence in a brand or a sector, which in turn can move the stock price. Put simply, the places in which data is created and disseminated are more diverse than ever before, and this can have a direct impact on shareholder value.
The formal infrastructures of politics and finance no longer control how information is shared in the commodity space. Rumours can move a market, and those rumours can come from anywhere, reaching a global audience in minutes. With so much publicly available data how do you make smart decisions? It’s a problem whether you’re protecting your own capital or a client’s, mitigating risk in a portfolio, or seeking profits in a fund.
Owning the New Data Landscape
The challenge with accessing this public data is that it’s a case of hundreds of needles lost in billions of haystacks. Some organisations have become more savvy in accessing insights from various alternative data sources such as social media, with keyword-driven searches unveiling some of this information. But it’s time-consuming to set these searches up - and they’re typically only partial in their coverage. For example, depending on whether you’re being colloquial or literal, terms such as ‘on fire’ can have highly positive or highly negative connotations if you don’t provide context.
If a leaked insight about OPEC’s boosting oil output breaks from a little-known source, outside of the native language and geographical region, there’s a good chance most organisations will miss this early indication. Instead they’ll be left reliant on a traditional news platform to break the story. That’s probably too late.
Alternative data can provide a critical head start. A commodities Twitter alert, for example, can allow you to monitor an emerging situation, rather than trying to react after the event. It’s how you stay razor sharp, and turn information chaos into opportunity.
Know and Decide First
This complex data landscape creates extreme exposure for commodities traders. It’s not a simple problem to solve, as effective data analysis across a myriad of public sources is difficult. But when you get it right it can provide the sort of trading signals that are essential in managing risk and generating profit.