The TradeCloud platform launched in October looks like the future of physical commodities trading.
We met with co-founder Simon Collins at LME Week to ask him about the launch and his vision for the industry
Product demonstrations don’t usually make us feel like we might fall off our chair, but TradeCloud’s did. The virtual-reality tour of the trading platform takes place in an underground laboratory reached down long corridors and high-speed lift shafts and demonstrates a one-stop shop where buyers and sellers can post bids and offers, compare terms, discuss deals, perform compliance checks and exchange contracts through a shared cloud server from a desk or a mobile device. This launch version of TradeCloud offers everything necessary to the trading of metals, but the platform has been designed to expand, accommodating other markets as it grows in popularity.
HC Insider (HCI): What problem is TradeCloud the solution to?
Simon Collins (SC): Rather than solving a problem, I’d say it creates a lot of efficiencies. The behaviour in commodities trading tends to be that people communicate one-to-one by email, phone or one of the available social-media tools. These are great tools, but they’re not designed specifically for the commodities industry, so we’re learning a lot about the amazing connectivity they give and adapting that for the industry.
HCI: TradeCloud has launched with a metals focus. Which other markets is it likely to expand into?
SC: We’ve started with metals because we know the issues with the current modus operandi and we’re very familiar with the people in the industry. But the efficiencies we’re gaining by using a cloud platform are applicable across all commodities. We believe that there’s good potential to expand into the oil, agricultural product and chemicals sectors. I don’t think we’d go beyond that – we don’t want to lose our identity as a commodities player.
HCI: Who are your competitors?
SC: The simple answer is that we have none, because there’s no-one with a product just like ours. We do see platforms emerging and there were some around before us, but they’re all subtly different as well as differing in terms of the markets they serve and how they position themselves.
HCI: What would you say are the biggest barriers to TradeCloud’s success?
SC: Adoption, obviously. I say that because we’re changing the way people work. It’s behavioural, so it’s about how people do business, how they go about their day-to-day routines. We’re changing that. Of course, there are comments that we sometimes hear from potential adopters. One of those comments is ‘I’m a dinosaur’ or ‘I’m a Luddite’, but we’re all adaptive. We all used to have telex machines, then we had fax machines, then we had email, and now we have chat tools like WhatsApp. Almost all traders have adapted to those changes, so I believe they’ll adapt to platform-based business as well. It just takes time.
The other comment we hear from potential users is that we’re destroying the personal touch of the business, making it machine-like. But I dispute that – there’s nothing stopping someone from picking up the phone or visiting someone, and because we’ve designed the platform to run as a mobile application we’ve catered to the fact that the physical trader isn’t someone who’s desk-bound. He’s someone who needs to be on the go and who needs to stay informed when he’s on the go, whether he’s seeing customers, visiting the port or checking on the loading of a vessel. He needs to be kept up to date with his business by TradeCloud, whether that’s through chat or information that’s being held securely in the cloud.
HCI: How far behind the financial markets would you say the commodities sector is when it comes to adopting disruptive technologies?
SC: I think the industry has been keeping up. It has been investing a lot in IT and software over the past decade, in response to growing markets and lower margins. If you look at the turnover volumes of the biggest oil traders, for example, they’re getting bigger because the markets continue to grow. The metals industry has also grown, but that extra capacity is mostly in China, connected to consumption. So traders have been adapting by building control systems. If you’re turning over $100bn every year, you need a high level of control over your operation.
Where the commodities industry has fallen short – and where we’re trying to fill the gap – is access to the client. This hasn’t really changed along with the other adaptations. Systems are primarily built to provide risk-management solutions. But you can see that in other markets access to the customer is largely through the mobile phone – that’s the shop window. We’re trying to learn from that and provide the same thing, so that you can access your customers through their phones.
HCI: The trading industry relies heavily on the ability to exploit ‘inefficiencies’ in market structures, but to what extent do trading firms embrace technology to bring more speed and efficiency to their operations?
SC: All market participants have been using technology to get an overview of trading conditions, and we’ve seen tech solutions such as data analysis services coming in. This is simply because they’re available and give a competitive edge. If you don’t have information your competitor has, you’re missing out. In general, I’d say that the last 12 months have been a watershed for businesses overall. They’ve been looking at what’s going on and saying, ‘We just have to have a digital strategy.’ There’s a lot of thought and expense going into it.
HCI: What would you say has happened to drive this change?
SC: I think companies see these Goliaths like Amazon and Alibaba in the market and can look at what’s going on in two ways. They can say, ‘Well, we need to disrupt the disruptors by bringing out our own tech,’ or they just realise that they need to be better at what they’re already doing. There’s the realisation that one day one of the companies using disruptive technology could move into their market space.
HCI: The skillsets required to develop progressive in-house technologies tend to be found in tech companies like Google, Amazon or Facebook. How much of a challenge will it be for trading houses to attract and retain such talent, given the cultural differences between these industries?
SC: There has to be some adjustment of the mindset in the commodities industry to attract that talent, but there are small signs that it’s changing. For instance, there’s the story of the recent relaxation of dress code at Goldman Sachs to attract tech talent. The environment techies like to work in is a little different – they tend to thrive in a more collaborative, happening environment, but the world of commodities has tended to be rather closed.
Companies need to reflect on their strengths and on what they can do from a technological perspective to improve their businesses. Is their strength their relationship with their customers, their reliability, the trust they have with their counterparties, their amazing logistical abilities, or so on? The industry has been asking itself these questions for a while, but we’re reaching a watershed. For instance, when we see Amazon move into the supermarket space, that’s simply one company moving forward in line with its capacity.
HCI: What is your vision for the future of how the commodities trading sector uses technology?
SC: We’d like to be involved in a discussion about building an ecosystem around commodities from a technical-platform perspective. This involves various elements including finances, insurance and logistics. These three are the key elements, and it’s about getting people connected – not just on the same platforms, but between platforms. For example, document solutions are a big thing for people trying to get away from the use of paper documents. We’re working more on contract solutions, and hopefully we’re going to merge the two together. We also see that risk-management systems are all going cloud-based, and it’ll be easy to put deals done on TradeCloud into risk systems.
HCI: Is it likely that in the future all physical commodities trading will be done on cloud-based systems?
SC: It’s highly likely. There are deals – long-term deals, for example – which are always going to be negotiated over time and off-platform. But even if you do that, it will be better to put those deals on the platform than not, because otherwise they’ll stay in isolation. What we envisage is that a deal will be done and the counterparty will ask you to book it on TradeCloud, because of all the post-trade services that come with that. It’s the record of your relationship with your customer.
HCI: This aspect of building trust between counterparties seems to be very important. Is this something we should see as one of the big draws for adopters of cloud-based trading?
SC: Platforms have been extremely good at building trust. Knowing your customer through the provision of financial documents is only the beginning. Airbnb is a good example of this. There’s nothing more personal than someone sleeping in your house, but Airbnb makes that happen. It’s the platform that makes it possible, by making the counterparties visible to each other in the right way. That visibility is what makes it possible to weigh risk against reward.
Simon Collins has more than 25 years of commodities business experience. During his career he has spent a total of 10 years in Asia between Beijing, Hong Kong and Shanghai. He held senior management positions at Gerald Metals for 10 years before moving to Trafigura in 2006. He managed Trafigura’s global refined metals department for five years before moving to the management board, taking responsibility for the group’s metals and minerals business.
TradeCloud is a start-up company founded by a group of executives with significant experience in the commodities and technology space. The goal of TradeCloud is to provide a universal platform where producers, consumers and traders can meet to exchange information on supply, demand and prices. TradeCloud aims to deliver a user experience that will ease communication, speed up the agreement process and reduce the risk of contractual failure. The objective is to give users a seamless solution for contracts, shipping documents and communication and to ensure that these processes are recorded, correctly distributed and secure.
The TradeCloud platform launched in October looks like the future of physical commodities trading.