The course will allow delegates to acquire insight and knowledge of:
- The working of processes in the commodity industry
- Production and consumption
- The working of processes
- Market participants and their roles
- The working of international commodity markets
- Recent developments (emerging markets)
- Future perspective of the commodity markets
- Bottlenecks: Availability, geo-politics, transport & environment
- Political developments
- The working of transport: Infrastructure
- Shipping, rail, road, pipelines & grids
- Products traded in the commodity markets
- The working and applications of those products
- Pricing, benchmarks and indices
- Risks connected to the commodity markets
- Correlation
- Skew in distribution of chances
- Usual trading techniques and methods
Course Background
The training course Commodities Trading is designed to provide participants with an introduction to commodity products, pricing, trading, market participants and fundamentals such as production and consumption. Additionally, a broad practical insight regarding risk management and trading strategies with derivatives is provided.
The training sessions have a strong interactive character whereby the contribution of participants is of utmost importance. A picture of the working of oil markets, relevant developments, risks and other relevant issues are given during the training sessions by means of questions, theory and theses.
Who Should Attend
This training course is particularly suitable for the compliant financial and commodity community including:
- Commodity executives in banking and corporate finance
- Risk managers
- Commodity credit and equity analysts
- Commodity traders
- Treasury staff
- Fund managers
- Investment managers
- Portfolio managers
- IT personnel
- Back office employees
- Legal staff
- Financial consultants to the commodity sector
- Journalists focused on commodities
Day 1
Commodities, commodity markets, pricing and trading
Introduction to commodity trading
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Asset classes
– Differences amongst categories
– The role of commodities
-
Classification
– Categories and their features
– Metals, Agriculture, Energy, Emissions, Freight, Weather
-
Latest developments : BRIC
-
Understanding the marketplace
-
Market participants - 1
– Producers
– Consumers
– Cartels
– Politicians/Governments
– Regulators
-
Market participants – 2
– Hedgers
– Arbitragers
– Speculators
-
Case study: The role & impact of speculators
Pricing
-
Pricing
– Fundamental price drivers
– Non-fundamental price drivers (sentiment, psychology, oveereaction)
– Regulatory price drivers
-
Prices
– Indices
– Benchmarks
– Pricing panels
– Brokers
– Data and news providers
-
Case study: Commodity price drivers
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Availability
– Reserves (Peak oil-theory)
– Growth of crops, harvest
– Knowledge and Technique (Genetic modification)
-
Geo-politics
– Net-importers vs. Net-exporters
– Cartels (OPEC, Gaspec, OREC)
-
Transport
– Shipping / Freight
– Vessels
– Transport routes
– Harbours
– Infrastructure
-
Environmental issues
– Weather events
– Global warming and Kyoto protocol
– Food-Feed-Fuel
-
Investments
– Required investment levels
– Regulatory uncertainty
-
Case study: Weather derivatives
Commodities in Investment Portfolios
-
Spot versus Forward (markets, prices and transactions)
-
Methods and products of investing
– Futures
– ETFs & ETCs
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Benefits of commodities in portfolio
– Diversification
– Inflation hedge
– Hedge against US Dollar
-
Forward curves
– Contango
– Backwardation
– Normal backwardation
– Cost of carry
– Convenience yield
– Roll yield
– Seasonality
-
Case study: Seasonality & storage
Commodity derivatives trading
-
Derivatives
– Forwards and Futures
– Swaps
– Options
-
Derivatives settlements
– Physical delivery versus Cash settlement
– Delivery moment versus delivery period
-
Underlying value of commodity options
– Delivery of physical good
– Delivery of future (before settlement of future)
-
Case Study: Cash settlement of freight derivatives
Day 2
Energy, Power and Carbon
Fundamentals of Energy products
Fossil fuels
-
Oil
– NYMEX- WTI
– ICE - Brent
– DME - Dubai-Oman crude
-
Case study: Contract specifications
-
Gas
– Hi cal and Low caloric gas,
– Gas quality conversion
– Liquefied Natural Gas (LNG)
– Gas storage
– Gas hubs: HH, NBP, TTF
– Gas echanges: NYMEX, ICE, APX-Endex
-
Coal
– API#2 - ARA
– API#3 - Newcastle
– API#4 - Richard’s bay
– Central Appalachian coal futures at NYMEX
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Case study: Contract specifications
Electricity
-
Power; A non-natural resource
– Nukes, wind turbines, solar panels or conventional thermal power plants
– The merit order
– The impact of Fukushima and Angela Merkel’s decision to close nukes
– Power trading at Nordpool and EEX
– Market coupling
-
Case Study: Locking in the profit of a power plant and oil refinery
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Case Study: Daily auction for the Day Ahead market
Carbon dioxide emission rights
-
Mechanisms
– EU-ETS
– CDM
– JI
-
Emission rights
– EUAs
– CERs
– ERUs
-
Pricing and Price drivers
-
Trading
– Exchanges and OTC
-
Managing price risk
– Refinery hedges (Crack spread)
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Case Study: The impact of emission rights price changes on coal and gas consumption - Fuel switching
Day 3
Agricultural products and metals
Precious metals
Base and Industrial metals
-
Exchanges
– London Metal Exchange (LME)
-
Base metal production
-
Base metal consumption
-
Trading, clearing & delivery
– Warehouses
– Warehouse receipts
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Case Study: Aluminium Hedge automotive industry
Agricultural Commodities and Biofuels
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Wheat, corn, soy beans, coffee, cacao, rapeseed, palm oil, jarathroba, sugar cane
-
Bio-fuels
– Bio-ethanol
– Biodiesel
-
Food-feed-fuel chain
– Discussion
– Ethics
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Case Study: CME Group: Calculations and hedging with CBOT futures
Soft commodities
-
Price Drivers
– Weather
– Investor activity
– Genetic modification
– Inventory Levels
-
Exchange trading
– CME Group
– Matif/NYSE Euronext
– MCX
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Case Study: CME Group: Calculating and hedging with CBOT options
Day 4
Risk management
Risk management for producers and consumers
-
Three steps
– Identify risks
– Measure risks
– Control risks
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Hedging customer exposures
– Forward / Future
– Long call option
– Inverse collar
-
Hedging producer exposures
– Selling forwards
– Long put option
– Buying collar
Value at Risk
Shortcomings of VaR
-
Stress testing
– Method to organize and apply stress tests
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Case Study: Stress testing
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Conditional VaR (CVaR)
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Case Study: Expected shortfall
Sensitivity analysis
-
Sensitivity of a portfolio value with respect to price moves
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Sensitivity of a portfolio value with respect to volatility swings
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Sensitivity of a portfolio value with respect to changes of interest rates
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Sensitivity of a portfolio value with respect to time passing by
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Case Study: CME Group: Calculating and hedging with CBOT options
Day 5
Trading strategies
Cross-commodity trading
-
Cross-commodity pairs
– Softs versus metals
– Metals versus energy
– Energy versus softs
– Risk offsetting
– Cross margining
-
Cross-border trading
– For hedging purposes
– Dirty hedges
– Proxy hedges
– Remote hedges
– Associated risks
-
For arbitrage reasons
-
To speculate
Final Sessions
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Spread trading
– Location spreads
– Coal (API#2 versus API#4)
– Quality spreads
– Maize versus corn (food versus feed)
– WTI versus Brent
– Proxy spreads
– Corn versus crude (food / feed versus fuel)
– Processing margin spreads
-
Case Study: Crush spread (Soy beans versus soy bean oil & meal)
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Case Study: Crack spread (Crude oil versus refinery products)
-
Differential spreads
-
Case Study: Spark spread (Power versus gas & carbon)
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Case Study: Dark spread (Power versus coal & carbon)
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Seasonal spreads
– Summer – winter (energy)
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Case Study: Harvesting of crops (softs / agicultural commodities)
-
Volatility spreads
– Nickel versus Copper
– Gold versus Silver
– Skew & Kurtosis trading with options
– Volatility curve trading with options
Course summary and close
-
The course instructor completed his study in Economics in 1995 and became a Market Maker on the trading-floor of the European Option Exchange (EOE) in Amsterdam. He was employed by Curvalue on EOE, Amsterdam Exchanges (AEX) and Euronext. In 1999 he established his own Market Maker company, which was licensed under the supervisory body AFM. This firm became a Member of Euronext Liffe, and had clearing-contracts with Fortis, KBC bank and Goldman Sachs.
Over the years, he has traded by open out-cry on the floors of various exchanges and has a great deal of experience in screen-based trading. He has extensive experience in a variety of products; ranging from stocks, currencies and commodities to futures, options and structured products. With the Anglo-Dutch energy exchange APX-Endex Jerry was (on an interim-basis) responsible for the development of the continental gas markets in Belgium and The Netherlands (2007). In this role he visited the dealing rooms of their members throughout Europe.
The course instructor delivers lectures at universities and was also project manager for the development of a new oil index. This global price basket and its underlying scientific research paper was first presented at the symposium Energy & Value, organized by Multinational Finance Society, incooperation with Rijks Universiteit Groningen and Energy Delta Institute. In 2008 and 2009 Nyenrode Business University embraced the project and this meant that he was connected to this university in that period.
He is a columnist for several media, and is author of the books 'Milkshakes & Butterflies', 'Hit & Lift' and 'Energy problems & future perspective'.
Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.
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