The risk management function in the SMEs or the large trading company requires a concentrate of competences, both «classic financial» related to risk aspects of the market, and an understanding of the risk dimensions of physical trading.
In a commodities trading operation the role of risk manager consists primarily to control the application of rules and risk limitation approved by the BOD and, if need be, of informing the latter of any violation.
The role also extends to supporting decision- making in trading, through analysis and supervision of objectives, while endeavoring to secure the value of transactions.
On a daily basis the risk manager and his team are in constant contact with the
various departments in order to compile the information needed to analyze the non-covered risks.
The risk manager concentrates especially on the market risk, risk of liquidity, basis risk, currency risk etc.) along with other types of risk associated with international trading such as risks of compensation (political / financial / banking) or “operational” risks associated with physical commodities (shipping/credit).
He or she thus organizes the risk monitoring of the operations with a view to allowing him or her to decide whether or not to set up a cover strategy by the conclusion of limiting the exposure depending on the risks the company is prepared to take, as defined in a hedging policy.
The “American model” might be worth studying for those “fancying the risk model”.
Cargill, a very clean company, basis of the industry, (L’Université genevoise du trading) is arch-structured, it’s an army.
When Cargill does something, it’s not thoughtless. Their traders are marked with the panties. As soon as a position is taken, it has entered the system, there are automatic stop-losses, and an army of risk managers who monitor the traders and evaluate the positions.
Cargill will cut you out before you can lose -6%, the hedge fund will bet double to do +12%.
The U.S company has chosen between money made in a dirty way versus building a bona fide sustainable.
(Even so… it doesn’t mean a trader cannot cut corners for margins and crush others when motivated).
Simon is a certified Energy Risk Professional, “the gold standard of Energy Markets” as distinguished by the prestigious Global Association of Risk Professionals.