Energy risk management
“You cannot swim for new horizons until you have courage to lose sight of the shore.”
― William Faulkner
Trading is one of the most risky businesses on Earth.
We do not know what market prices tomorrow will do, plus also no way to predict which of our client(s) will go bankrupt. But this uncertainty does not mean that we sit back and wait for miracles.
There are techniques to identify, to quantify and to manage such risks.
Several risk factors are well known
Market risk
Market risk is not only about price changes, but there is also an important liquidity factor here. Sudden price fluctuations may reduce liquidity. In case of a big portfolio, this can create extra risks. This is why appropriate limits should be in place to avoid over-exposure to one particular contract.
Financial risk
Financial risk is all about company financing. For example, do you have enough cash around to finance margin calls from exchanges? Foreign exchange risk the other big factor here. Hard earned profit expressed in one currency may disappear by the time you convert it back into your home-currency. There are tools to hedge such financial risks.
Credit risk
Credit risk is focusing on the non-performance of your suppliers and off takers. It might happen that a long-term, always performing off-takers could not pay on time or not at all. This is why a partner monitoring system should be in place; and credit risk scenarios should be run daily.
V-Energy can help its clients with the following points:
- evaluation of portfolio risk
- analysis of such risk
- evaluation
- preparing risk-reduction steps
- introduction of limit structures
- preparation of partner-approval processes
- preparation of operational guidelines
- client approval processes