RISK AND RISK MANAGEMENT

There are inherent risks that accompany physical commodity trading.  These risks are identified and mitigated through internal risk management and measurement systems.  This allow's our trading activities to function within parameters that have been determined to be safe and provide the highest likelihood of operational success.

 

 

Some risks and risk management strategies include:

Operational Risk

Several of these risks include a trader entering into positions that exceed our risk tolerance, problems with the delivery of our products to our customers and the failure of communication between our front and back offices. There are numerous other operational deficiencies that can arise and all must be prevented or mitigated as best as possible.  Operational risks are managed by the execution of operational best practices, stringent hiring criteria of our traders, exceptional managerial methods and communication with our clients, attention to detail, use of our risk management committees on a daily basis and providing an internal standard that is met by every element in our company from the very top down.

Legal/Reputational Risks

Risks include legal ramifications due to environmental damage which may occur during delivery that can lead to health and safety issues, dealing knowingly or unknowingly with corrupt entities in foreign countries, not abiding by domestic and internationally imposed trade sanctions and market manipulation.  These risks are managed by a very clear and thorough understanding of all domestic and international trade, health, safety, environmental and corporate laws and implementing best practices under these guidelines. Continuous use of our legal and advisory teams also affect our risk management capabilities and a meticulous recognition of how well these guidelines are being followed are imposed on a day-to-day basis.

Political Risk  

Risks include a change in government, policy or governing structure that correlate with a seller or buyer you are conducting business with in a given country. Also, conducting business within a country that has a weak rule of law can pose a potential risk. Understanding the geopolitical environment before entering into a business agreement with a company within a foreign country helps mitigate the political risks. 

Margin/Volume Risk

Foreseeing fluctuations in supply and demand in geographic regions that products being traded are bought or sold to are the most effective way of managing these risks.  Historical reference, geopolitical knowledge and efficient use of information technologies are our best resources to predict a volatile fluctuation in supply and demand.  Hedging strategies will be used to mitigate the effects of ongoing transactions being affected by changes in supply and demand and margin and volumes.

Contract Performance Risk 

Risks are managed by strict vetting policies of the seller and buyer’s operational history, credit history, company performances within their marketplace and referral acquisition from trusted colleagues.

Pricing Risks

 

Are managed through the rigorous examination of the markets and the implementation of trading strategies that preside within the company’s risk management thresholds.  

Flat Price Risk

The risk of the price of a commodity moving in a direction that creates a loss rather than a profit. 

Basis Risk

The risk of a differential in price between the commodity being hedged and the hedging instrument fluctuating within the two markets they preside in.   

Centillion Corporation 2019

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