Volatility Expected to Continue in Commodity Trading

Terry Flanagan

Volatility is expected to remain in the commodities space, as tightening regulation looms large over the sector.

“We expect a similar pattern to last year where there were pretty wild swings from mild euphoria to mild panic,” said Ed Bowie, investment manager of Altus Resource Capital and Altus Global Gold, two Guernsey-domiciled long-only equity funds that invest in the mining sector.

Ed Bowie, investment manager of Altus Resource Capital and Altus Global Gold

Ed Bowie, investment manager of Altus Resource Capital and Altus Global Gold

“So we are going to see pretty significant volatility in commodities prices with the general trend remaining upwards for 12 months and beyond with China being the primary driver.

“And although volumes are coming back in the general market, in the smaller end and the resource space we haven’t seen that yet.”

China, the world’s biggest consumer of commodities, continues to have an overbearing influence on global commodity markets.

“Everyone watches China very closely and any move from China tends to move the market one way or another, rightly or wrongly,” said Bowie.

Meanwhile, post-crisis regulations in the form of the U.S. Dodd-Frank Act and its counterpart Emir in Europe are beginning to be felt in commodity derivatives trading arena as costs ramp up due to increased transparency requirements and an attempt to reduce systemic risk in the space.

“A lot of the regulation is driving what used to be in the over-the-counter markets to what is now cleared futures,” said Tom Mallon, global director, energy and commodities for Interactive Data, a provider of financial market data and trading platforms.

“The new regulations are creating a lot of uncertainty within the market. This is driving a need for more information that is delivered in a more efficient manner.”

Interactive Data has recently upgraded its FutureSource workstation, which supports traders, brokers and analysts in their investment and trading decisions. New content to be added to FutureSource includes extra data on OTC commodities.

“Energy and commodities traders, brokers and analysts face challenges related to global demand pattern changes, volatility and asset diversification, and they are looking for a platform that can provide the content, functionality and usability required to aid their decisions,” said Mallon.

“The upgraded capabilities in FutureSource are designed to address these decision support needs while helping our customers maximize the value of their market data spend.”

Enhancements to FutureSource include expanded content, enhance options analytics, current trending news, tick bar charts and tree structure searches.

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