How Has Fintech Revolutionised Commodities Trading?

The UK currently leads the world in fintech. Investment in high growth fintech firms reached £4.5 billion between 2015 and 2018 and when it comes to scaling, firms in London grew at a faster rate than anywhere else in the world, according to the Tech Nation Report 2019.

As the financial world becomes accustomed to the progressive technologies of artificial intelligence (AI) and blockchain, which are already integral to providing services like fraud detection and stock trading analytics, fintech’s golden goose is commodities trading.

Fintech in commodities trading

Commodities have been traded since the beginning of civilised society. From seashells and spices to gold and minerals, the speculation of their value has and still is an integral part of the trading process. Complex trading systems have always been in operation when defining a commodity’s value and worth against other commodities like gold or currency. So, improving information exchange and the ability to analyse minute fluctuation can be crucial to trading strategy.

DailyFX’s podcast explores how commodities traders look at how price formations happened in the past in order to attempt to predict fluctuations in the future. As technology moves forward, the energy sector – crude production and price – is a key driver of inflation, and price formation becomes a vital analytic of how fintech companies are investing in ways to counter and predict inflationary pressures within the energy sector. This, of course, is of great interest to traders looking at daily or weekly fluctuations in crude oil prices because this commodity is used in almost every industrial and commercial sector.

How fintech has levelled the playing field

As investment in financial technology has risen, it has levelled the field for everyone, providing access to services and analytics previously only enjoyed by the privileged and wealthy.

Fintech is mainstream now; visible evidence of it run right through digital banking services, with the rapid growth of mobile banking being a case in point. Mobile banking’s potential is huge, and hot on its heels is financial trading.

Technology and big data handling are making it much easier and less costly for almost anyone to access accurate, in-depth investment advice. Through analysis of historical stock prices, comparison with other commodities over different times, data allows precise analytic trends or patterns to be calculated.

Combining patterns and trends with AI finds application in what a new breed of traders and investment advisors have dubbed robo advisors. These make up one of the largest areas of fintech, replacing face-to-face meetings with an automated device for automated advice. Algorithms are integral to AI and used to enable huge amounts of data to be processed and understood.

Improved security for commodities trading

Algorithms also help make commodities trading a much more secure environment. Fintech has enabled the reduction of information asymmetry. This refers to a failure in information transfer in economic transactions when one party has more information than the other and can unbalance trading. For instance, there is information asymmetry when a seller of crude oil who knows they have overproduced but isn’t telling the buyer that the market will saturate.

Fintech is a huge investment for financial institutions and service providers. It has made economic information easier to access for the masses. Automated transactions continue to make the commodities trading process a lot safer, open and more secure. Fintech continues to revolutionise the financial services industry with the delivery of better products and systems utilising more data, faster. For brokers and commodities traders, this is just the beginning.