The Tidal Wave of Technological Change — No Industry is Immune
Having spent over two decades in the world of Commodities trading, it seems like quite a departure to now be in the world of Fintech. The reality, however, is that no industry is immune from being completely upended by technology- and commodities trading- as old school as it has been — is no exception. In this article, commodities veteran Etienne Amic shares why, and how, commodities trading will change as a result of sweeping technological innovation.
Bigger profit margins in the commodities business (as compared with other traded markets like equities and fixed income) were historically due to “asymmetric information” — better known as large players being able to create advantages for themselves in the markets due to lack of transparency. Data availability and analytical horsepower is a great equilibrating force, in all industries- and commodities is now at the forefront of some of the biggest changes.
Amic correctly looks at the entire value chain across commodities trading- because there is potential for disruption throughout the entire process. Blockchain will make the supply chain auditable and transparent in a way that it has never been before. Satellite technology can already detect the amount of cargo in ships before they enter a port. Voice trading has all but completely gone the way of the dinosaur, and algorithmic trading — routine in many markets — has finally made its way into some, but not yet all, areas of commodities trading.
The agricultural commodities markets are some of the oldest markets in the history of the world. There is evidence that the first commodities futures contracts were written 6,000 years ago in China. Could markets this old really be revolutionized? With the use of Artificial Intelligence, precision agriculture is doing for crop growth- and production predictability-what self driving cars are doing for transportation, and Pefin is doing for personal finance. In the case of agriculture, this revolution can result in being able to feed the world affordably. Certainly a case for technology making the world a better place.
Technology itself is neither inherently “good” nor “bad” — but it’s what the humans using it choose to do with it that has value attached to it. Being able to make markets more efficient, competitive pricing, and allocations of resources where they are most highly valued, is good for the world, even if it means lower margins for commodities traders. Who will be the Airbnb or Amazon in the energy and commodities trading space? Rest assured they are working on it right now!
