Risk Management

Risk Management

Risk management is the process of identifying, assessing, and controlling unacceptable risks. The extent and type of unacceptable risks vary considerably among people and organizations. Some organizations are highly risk averse, while others are risk-takers. Ironically, many organizations who claim to be risk-averse are often taking more risk than they realize.

Risk management controls cost and revenue risks, so it helps secure and improve profit margins. As such, risk management -- implemented wisely -- pays for itself many times over.

Risk Management Services

WTL Trading helps all commodity price sensitive businesses understand and apply risk management tools and strategies to control costs and ensure profitability.

Steps to Effective Risk Management

1. Define goals & objectives

2. Identify risks to achieving objectives

3. Determine risk tolerance

4. Establish risk management policy

5. Implement risk management policy

6. Monitor implementation through regularly updated position reports.

The best risk managers are aware, assertive, and knowledgeable. They never surprise managers with bad news nor are they surprised by what the organization's risk takers are doing.

There are a number of excellent risk management resources and tools available on the web. Here are two of the best.

Tools

The following tools are fundamental in managing price risk:

Futures

Exchange-traded or OTC (over-the-counter) contracts

Options

Instruments that, for a premium, give the buyer the right to buy (or sell) underlying contracts at a “strike price” by a specific date.

ETFs

Exchange-traded funds in oil, gasoline, heating oil, natural gas, metals, agriculture, and other commodities. These ETFs provide alternatives to futures that are effective, but less costly.

Hedging is part of risk management. Futures, options, and exchange traded funds provide several effective means for buyers and sellers to control price risk.

WTL Trading

Risk Management & Trading Services