8 risk indicators in commodity trading companies

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Increased competition, the growing sophistication of customers and investors, and the demand for value-added products and services have forced many organizations to examine the existing business processes associated with their commodity-related operations, and to introduce more complex trading products and strategies in order to remain competitive. With this increase in complexity comes an increase in the associated risks. Currently you have JavaScript disabled.

In order to post comments, please make sure JavaScript and Cookies are enabled, and reload the page. Click here for instructions on how to enable JavaScript in your browser. Expert Blog - Audit - 8 risk indicators in commodity trading companies. We have identified eight red flags that could indicate increased risks for stakeholders: Opaque business models can include transactions with unidentified parties, offshore entities and agents with an unclear purpose. In times of trade sanctions, anticorruption and anti money laundering laws, these business models may involve high legal and reputational oil trading business process.

High oil trading business process costs can create pressures on traders to generate profits and to take risk positions. For trading companies, it is important to keep the cost structure flexible in order oil trading business process adjust in time of limited trading opportunities and to avoid entering into non-performing trades. Consideration of historical oil trading business process A commodity trading entity with different trading strategies that consist of outright speculation and speculation on spreads or arbitraging positions must be able to explain the financial results of each strategy.

Stakeholders should be worried when management cannot explain the root cause behind its results and has a history of low or negative financial performance. Limited experience of risk managers: Risk managers may feel pressure from traders to increase trading limits oil trading business process to enter into certain specific transactions. Risk managers with limited experience and insufficient authority within the organization may not be able to withstand these pressures and can put the company at risk.

Misalignment between interests of traders versus other stakeholders: Stakeholders need to be aware when there is a separation of ownership and management. When traders do not have an interest in the company, they may be insulated from downside risks while they are rewarded for upside risk, which can result in excessive risk taking.

Overly complex trading products: In times when trading margins are under pressure, companies are looking for alternatives to improve margins. This can result in entering into deals of which the risk are not fully understood or in which the company has limited experience to execute. Successful trading companies differentiate themselves by efficient oil trading business process execution. Ultimately these companies are successful not by speculating on price movements but by managing efficiently the logistic process in oil trading business process to get products from A to B.

Indicators of poor trade execution include counterparty defaults, legal claims, high demurrage expenditures and inventory losses. Companies that apply aggressive accounting practices may conceal the real underlying performance of the company.

Stakeholders of trading companies should be aware of non-cash items recognized as profit as well as structures to derecognize assets and to improve the balance sheet. Leave a Reply Cancel reply Your email address will not be published. Regulation trends oil trading business process the commodity trading sector. The role of commodities trading in global economy.

Impact of the Swiss new accounting law on trading companies. Risk management and financial reporting for commodity trading.

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Welcome to Channoil Contact us. Channoil was invited by a major oil company to carry out an independent review of a set of new business processes for handling the group's crude oil supply and products trading activities in the Asia-Pacific region. Eight countries and three refineries were involved in the new proposals.

Channoil was called in to review key business processes and develop new strategies for crude oil supply and the marketing of refinery production surplus to domestic market needs and also to advise on the management of price-risk. The company trades and markets oil products in the United Arab Emirates under its own brand name.

Channoil was invited to review its supply and trading organisation. We assessed its role and capabilities and proposed the modifications needed to align more closely the company's oil trading and shipping performance with best industry practice. The review led to the introduction of a new structure for the group and the creation of a completely new function of supply-chain management. This consisted of a fully integrated approach to all activities in the supply chain, from crude selection and refinery planning to logistics and distribution, and from crude oil and products supply and trading to price-risk management.

Other projects undertaken for the company have included a major strategic review of a potential merger and a study of the market for hydrowax and straight-run naphtha. When a major electricity generator and supplier wanted to expand its limited supply and trading activities and become a global international oil products trading company, Channoil was engaged to review its existing activities and to identify any gaps in its business process and control framework.

Recommendations were then made about the action needed to fill the gaps. Channoil supply and trading experts were then brought in to provide the company's staff with the necessary guidance, documentation, training and development. For more information, Phone: Channoil Consulting Limited is a company registered in England with company number Also in this section: Supply and trading business processes Feasibility studies and valuations Privatisation advisory services Sales transactions.

Supply and trading business processes Far East Channoil was invited by a major oil company to carry out an independent review of a set of new business processes for handling the group's crude oil supply and products trading activities in the Asia-Pacific region.

Germany When a major electricity generator and supplier wanted to expand its limited supply and trading activities and become a global international oil products trading company, Channoil was engaged to review its existing activities and to identify any gaps in its business process and control framework. Channoil news For more information, Phone: Do you require further information or someone to contact you?