Addressing the Intraday Trading Position Conundrum

By Edward Cuoco and Victor Milligan

Pages: 1 2 3 4

Illuminating Profits and Reducing Risks

It is easy to ignore solutions from other industries when attempting to expand the analytic capability for energy trading. Indeed, both heads of trading and IT management often raise objections to such an approach, believing that trading is unique or too mathematically complex to find guidance in other industries, or that only companies steeped in trading and risk management expertise can possibly provide solutions in a timely, cost-effective manner.

However, these objections do not stand up to investigation. In telecommunications, these solutions are already in use, having been proven in maximizing revenue for billion-dollar industries and working with millions of records across multiple systems. Simply put, experience in other verticals has shown that complex analytics can be implemented quickly and efficiently by leveraging solid technology and proven best practices and expertise in process, logic, and data.

In order to successfully adapt solutions from other vertical industries to energy trading, organizations should take an approach based on quick timelines and minimal risk. Big-bang solutions should be avoided; more attention should be focused on small systems that address core parts of the risk-reporting process such as the integration of generation data, analytics, etc.

Companies should begin by working with proofs of concept as a way to confirm a technology’s ability to perform a function and through proofs of value to test logic, data, and analytics. By keeping initial timelines and investments short, organizations will maintain more flexibility to mix and match technologies and avoid becoming trapped in a substandard solution due to large investments of time and money.

Finally, along with these new tools, existing trading and risk management technologies also have a role to play. When investigating technologies, organizations should pay attention to the ease with which new technologies can be integrated into existing architectures and data models. Even the most simple, elegant tool can result in a blown budget due to integration costs.

Market, industry, and organizational pressure all suggest that organizations that successfully improve the accuracy and timeliness of their risk reporting stand to benefit from improved margin, reduced controls, and the ability to more quickly move in the market. New tools from outside the traditional trading or utilities space can provide the needed functionality to quickly and cost-effectively create this expanded analytic capability for any trading desk. With a little technological planning, the future will be very bright not only in terms of profits but also in lowered risk.

—Edward Cuoco is the director of utilities and energy markets and Victor Milligan is chief strategy and marketing officer at Martin Dawes Analytics, a process analytics software provider.