Trading in the derivative over-the-counter (OTC) markets is definitely not for the faint hearted. Consider for a moment the stability or, should I say lack of stability, for example in such commodities as copper and oil. We have seen copper more than double in price. As far as oil is concerned how on earth do you manage the risk when this commodity increases by a factor of more than 10 and then decreases again to almost half its peak value?

This volatility in commodity markets continues to highlight the desperate need in understanding commodity markets more fully. This can only be achieved by the introduction of risk management products and in-depth training in hedging and managing the risks many face when dealing with commodity markets.

It is fair to say that most companies which have experience in dealing with commodity markets either through years and years of experience or as commodity market specialists may well take risk management and hedging in their stride.

What about the rest of us? How do we learn and minimize the risk while learning?

This is not to say that there isn’t any training available today.

For example, with the heavy marketing on futures, you will find that many of the well established exchanges do run training programs (some very basic) on how to hedge risks in the derivative over-the-counter markets. You will find, however, that these courses can be rather expensive and the majority will be geared and focused around the company’s own products.

At the time of writing this article, I have yet to find any training programs or courses that are far more comprehensive and go beyond the basic material already out there. What is needed is a program that gives us hands-on experience of managing derivatives risk in fully understanding commodity markets. Of course, there needs to be a foundation in the theory but the biggest benefit would come from understanding and practicing what happens in the real world of commodity markets.

If we compare what is required with other training programs within the finance sector (investment banking for example), we do find in-depth courses but when it comes to understanding the functions of futures and hedging commodity market prices, we are still presented with the bare minimum and that usually is tailored to the financial organization’s specific products.

It is certainly well within the scope of those within the commodity market industry to develop the type of learning event that gives us both the theory needed and the level of hands-on practice to build our confidence and minimize the “risks”. Major commodity trading houses have years and years of experience and have the in-depth knowledge to make this possible.

Yes, regular updates and further training will always be needed. I believe that risk management in general and understanding commodity markets such as oil and metals in particular continues to grow in complexity. I also believe that it is an exciting and very challenging profession with large rewards for those who know how to manage the financial risks successfully.

By: Agustin Valecillos

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hawkal2k5 asked:


Money has become a commodity just like anything else in limited supply it’s real world value or buying power fluctuates due to the supply and demand of money.

Now I don’t agree with central banks like the federal reserve or the bank of England because to me it is there just to control the market of money. To control the real value, supply and demand of money which they can do easily.

This to me is similar to communist markets where by everything was decided by the government, from what would be produced to how much it would be sold for.

Wouldn’t it make more sense to apply the same free market ideals we have with trading produce to the market of money?
I don’t see the relation between pay cheque and a central bank as far as i’m aware they play no middleman role within the exchange or conversion of real or implied money.
between private banks that is.