Presently , there are knee-jerk competition with the growing rick of sophistication of customers and investors and the growing demand of different kind of value added products and services have forced most of the organizations to rethink about their business strategies those are associated with the commodity and their operations. As these is now introducing more complex trading products and strategies to be competitive. These actions come with various risks.
There are various risks including-
Lack of knowledge for business models: If someone has lack of knowledge for Business Models include unidentified transactions, offshore entities and with any deem purpose. When the time comes for trade sanctions, with anticorruption and anti money laundering laws, they may involve with high legal reputational risks. The trading leeway those are unexpectedly high, they may indicate the lack of knowledge of transactions which have been excited due to arm’s length basis.
A peak of overhead price: In trading procedure, high overhead price can force the traders to generate profits and to take risk positions. For commodity trading companies, it is very essential to keep the cost structure flexible to adjust the proper time limited trading opportunities and helps to avoid in order to enter the non-performing trades.
Judge for the best performance- For the companies, it is very important to find out how the strategies contributed on the result of the entity whether the entity was profitable when adhering to its risks to be kept in limits. A proper strategy with different trading plans which is consist of outright speculation and that speculation on spreads or arbitraging positions must be able to explain the accurate financial results of every strategy. Stake holder will worry when the management can’t explain the soul cause of the results which has a history of financial performances.
Inexperienced Risk Managers : While above circumstances will come with full force, Risk Managers may feel pressure from the traders to increase the trading limits to go through into specific transactions. In such times, risk managers with lack of experience and insufficient authority within the origination may not be able to withstand on these pressure which can be put company in risk. Trade commodity finance need to be proper consideration which will lead to a riskless result.
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