Discover why the roots of today’s commodity and financial industry go back to nature

Commodities and NatureIn the modern day trading environment, millions of trades take place at a global level daily. This article sheds some light on where it all began.

 

Have you ever noticed how the names and trading processes used in the financial and commodity sector relate strongly to nature? You will be familar with some of the below but hopefully you can also pick up a few more.

We know that the Futures and options mechanisms sprang from the farming community around Chicago in the 1840s to protect the interests of farmers. The spot market grew as a destination where farmers travelled to a venue “spot” to sell their produce at the available price. Looking a little deeper into the commodity industry high lights the origins of processes associated with nature. So let’s take a look around the jargon in use today and you can see the connections.

First off lets look into Cow and Pig, usually found in a rural setting but also taken up into the language of commodity. In shipping COW stands for Crude Oil Wash. Crude is by nature pretty sticky stuff and when unloading a cargo some often remains on the tank sides. In order for the Bill of Lading (trade document) volume to be reached, the tank sides are hosed down using Oil from the tank, so the remaining volume can be taken from the tank.

In the shipment of Natural Gas the pipes used are subject to large volumes of products constantly. The Natural Gas has a corresive quality which must be monitored, otherwise a leak would occur. Step forward Pig. Pigging is the process of sending a robot or “pig” through the Gas network to measure the durability of the piping structure. The data is sent for analysis to determine whether repairs need to be made.

Commodities and Nature1Next off there is butterfly spread trading. Being a neutral strategy combining a bull spread and a bear spread. This structure provides limited profit and also limited risk. If you search on line or through your Bloomberg terminal then you will notice the symmetery and the reason behind butterfly spreads. Now we move into Bull and Bear Markets, you will know that Bowling Green Park, off Wall Street features a charging bull representing  financial optimisism and by contrast of course the bear whose view is pessimistic. As we know there are strategies to manage both scenarios.

Quite apart from the traditional Stags found in forests and parks our version is a short term speculator with a view to profit from within day trading. Characteristically moving in and out of positions quickly.

In the same four legged theme, a Unicorn apart from have a spear like antler is also a tech start-up company that has reached $1 billion market value. Depending which report you read and how the valuation is carried out there could be a mystical element attached to these companies.

So there we have a few examples of nature and wildlife in the financial and commodity industry. There are others which you may know about and perhaps would like to share as a comment on this post?

It would be great to hear your thoughts on this any related topic, we do value and appreciate your time. If you enjoyed this brief article, please share with your groups.