Commodity traders around the globe, including those in the energy industry, are currently facing a range of challenges and opportunities. While investment in modern technologies has become an important condition and prerequisite towards financial success, companies still strongly rely on people’s know-how and human potential to drive strategies and decisions and therefore profits. The global trends imply new challenges and therefore require particular habits to be built in the energy business to successfully face those and make use of new opportunities.

In our previous article, we took a look at some of these challenges. Inspired by the recent industry movement, this post focuses on three important habits, respectively groups of such that energy trading companies should build to be successful.

One of the key success factors in the coming years, outlined in McKinsey’s article about the future of commodity trading explicitly mentioned are talent and agility. However, skilled professionals also need to rely on deep global and local market trends understanding and the ability to interpret those.

Habit #1: Understand the Big Picture to build up a strategy, keep track of current market and geopolitical trends, and adjust to those.

Commodity trading is a complex business and – like any other professionals – traders should understand the environment and the circumstances they are operating. Trading commodities and energy resources are affected by several constraints – supply and demand, price differences throughout various regions, logistical availabilities, (geo-)political considerations, natural occurrences, weather conditions, and more.

Nevertheless, this does not mean that every action, especially short-term, has a major impact. Not every action would lead to a change in the selected long-term strategy. One should therefore focus on the political or economic constraints rather than people’s wishful thinking.

In the end, data and hard facts are likely to overthrow personal preferences. Although reading news, analyzing messages, and seeing the big picture do not guarantee success, these activities can help identify future trends and opportunities.

Have a long-term strategic vision, be open to taking advantage of ad hoc opportunities, and know when to stop.

It is easier to set data-driven long-term goals and targets when looking at and understanding the big picture. Such decisions are more reliable, accurate, and stable. This will help create, implement, and adjust short-, mid-, and long-term strategies considering the local and global energy market conditions.

Traders with experience and an ample data supply, based on trends, forecasts, and extrapolations can more easily react to market instability. What’s more, they can take advantage and profit from the situation. These are called “Ad-Hoc Opportunities” or, simply put, seizing an opportunity when needed. While such opportunities might look enticing, they need to be well-managed. To avoid mid or long-term setbacks they should be well-coordinated with the traders, risk management, and company management – hence, “know when to stop”.

Stay informed and keep track of current trends, as information is key in highly volatile environments and turbulent times.

Data is the most important commodity in the modern world. Being able to dig deeper into what is happening worldwide and understanding the volatility of the energy market short, mid, and long-term will allow traders to act accordingly to emerging and not-so-easy-to-notice trends, opportunities, and issues. Keeping an eye on general news is important as well.

Trends are often dictated by general circumstances, such as weather conditions, and political movements in major world powers or producer countries, for example, the Organization of the Petroleum Exporting Countries (OPEC). Even a seemingly unimportant trend may cause various issues or future opportunities. Combining fundamental analysis with short-term trends and market opportunities and keeping track of recent developments are key elements to avoiding unnecessary losses and capitalizing on said opportunities. This includes regional and niche markets.

Habit #2: Act with diligence and set up proper risk management processes.

Energy trading can be highly volatile and unpredictable. Developing discipline and risk management habits is essential for professionals in this field. This includes setting clear trading goals, adhering to predefined strategies, and maintaining emotional control during volatile periods. Implementing risk management techniques, such as setting stop-loss orders, diversifying portfolios, and monitoring exposure limits, can help mitigate potential losses.

Having the discipline to follow these risk management practices can protect traders from significant downturns and promote long-term success. This applies to non-traders too. An easy yet extremely powerful tool to avoid errors and issues is the four-eye principle. Let a colleague review your latest piece of work. Four eyes do see more than just two and the effort to correct a mistake is easier before any damage is caused.

A subject that has been extensively deliberated but still requires constant emphasis is cybersecurity, particularly data protection. A properly set up IT environment needs to lie at the core of each organization. However, even the best IT security system might fail if employees are unaware of cyber threats and lack sufficient training to recognize and counter phishing attacks or identity theft. Therefore, the most effective measures against internet illicit activities begin with a vigilant and informed team to handle these digital threats appropriately.

It’s worth mentioning that threats are not only coming from the outside of the company. Professionals should keep in mind potential risks from the inside as well as respective protective measures. In this regard, take for example the following aspects from an operational risk management perspective:

• Segregation of duties on all management and operational levels, i.e. strict separation of risk management as well as trading activities.
• Installation of trade surveillance tools with warnings if limits are about to be exceeded.
• During longer holiday periods, let a colleague of the person on vacation handle their daily operations. Similar to the four eyes principle, potential mistakes or possible misconduct are likely to be discovered much easier this way.
• Four eyes principle and/or double-check: Double-check your activity, be it work or additional tasks, is crucial to avoid errors, issues, and problems in the future with counterparties and various other departments.

Habit #3: The human factor

Keep a motivated, qualified, and well-shaped personnel

According to the fifth success factor mentioned in the McKinsey article, a thriving trading platform needs three key elements. They include a flexible organization with agile principles, moving tech to the cloud for efficiency and talent savings, and an enticing offer for top technical talent.

Think and take action before passing the ball to the next colleague

Just imagine a sports team constantly passing the ball to each other – they may look very active, very involved, and busy – but they will make close to no progress.

Being a self-conscious and productive part of the project is crucial. Use the resources at your disposal and attempt new avenues of advancement before passing the ball to a teammate or asking unnecessary questions. Being well-versed in the subject matter before resolving these two actions will also make you appear more competent, and as a side bonus – you might even learn something new in the process.

Give yourself 15 minutes to unwind.

A person is more likely to be more productive and enjoy better success in a task with a clear head. It is a very valid option to stop, give yourself a small pause, sort yourself out, and then complete your task. Such techniques to keep employees alert and productive date way back in the day when workers involved in heavy mental activities were provided with a 15-minute break for each hour. Rushing into a task exhausted is the easiest way to destroy your body and hinders your ability to complete what’s started.

Let’s end on a lighter note: Drink enough coffee.

Caffeine helps to keep you alert and awake, so it’s more likely that you will make the right decisions and make fewer mistakes.

Authors: ROITI’s Business Solutions Team