Commodity trading is no revolutionary activity; yet, the introduction of digital technologies over the last few years has enabled the development of a new environment and advanced practices, better aligned to meet the objectives of traders and investors.
Estimates show that about $10 trillion worth of commodities are produced and consumed per annum globally. Each of these commodities completes its cycle along the supply chain, but until now it had not been possible to integrate and exchange information between them.
The convenience and speed brought by the digitisation of trading opens the commodities markets to new classes of investors, with the need for more transparent and efficient commodity trading practices being addressed through open-sourced technologies. The very same disruptive technologies which are being deployed in various other industries, particularly prominent in fintech, can also make trading a more efficient and reliable undertaking.
The digitisation of trading includes the implementation of tech features into systems to allow better performance, as well as initiating a shift in the structure of assets themselves: digital assets are increasingly popular and comparable to traditional equity stocks, with the advantage of being more user-friendly and accessible.
If on one hand, digital assets are democratising the market, the digital tools within their structure help with understanding and processing of the cycles and behaviours of commodities trading, allowing for better informed decisions and improved risk management. They also provide closer estimates and predictions about demand, markets swings and external sentiment.
The rise of Digital & Tokenised Securities
The new year started on full steam around tokenised securities, with the recent launch of a trading platform by DX.Exchange that allows investors to buy the security tokens of popular Nasdaq-listed companies, such as Apple, Tesla, Facebook and Netflix.
“By tokenizing stocks of some of the biggest publicly-traded companies like Google, Amazon, Facebook and more, we are opening an untapped market of millions of old and new traders around the globe cutting out the middleman,” said Amedeo Moscato, DX’s chief operating officer to CNBC.
The important difference is that STOs are asset-backed and fall within regulatory parameters, working similarly to the way IPOs do in the equities market. Therefore, security tokens are naturally less susceptible to market volatility and offer better security to both investors and companies.
With tokenised securities, tokens can be transacted on a global scale, allowing borderless transactions 24/7 anywhere in the world regardless of business hours and time zones, even outside market hours. Thus, tokens are bound to become increasingly popular and regulatory frameworks should continue addressing them more fully.
Usually stored in smartphone-based digital wallets, tokens are secure and immutable, representing a more attractive alternative to the old environment of the stock market.
These digital assets are supported by the integration of other technology intrinsic to market and trading mechanisms, especially artificial intelligence, blockchain and biodata.
● The terms Artificial intelligence and machine learning represent computer software that learns automatically through patterns in stored data. The implementation of AI algorithms into trading systems generates improved responses through a predetermined logic, which leads to more accurate results and reduced costs and losses.
● In the realms of both physical commodities or digital assets, Blockchain is a useful technology as it allows storage and transactions to be optimised. More than enabling cryptocurrencies and tokens, because of its decentralisation, automated data and strong security framework, blockchain is an ideal underlying structural technology for new trading platforms .
● Some innovative mechanisms are working beyond the trading machinery to improve activity at human level as well. Platforms such as NeuroTrader harness biodata and AI within a platform designed to optimise trader performance. Based on studies around trader behaviour, the platform uses neuro and psychological information to stipulate the best trading decisions. The purpose is to create an advanced risk-management tool for professional traders and mitigate losses.
“The new generation of digital technologies like AI, blockchain and Big Data, are very versatile.They can be deployed to various ends to meet different needs across virtually all industries. In the case of trading, these new tools add value to investor experience and nurture a more transparent and open environment,” says Stefania Barbaglio, Director at Cassiopeia Services.