What’s driving the systematic shift in commodities trading?
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What is systematic trading and why is it gaining traction in commodities?
Hi there, and welcome to JPMorgan's Making Sense. I'm Lee Price from the Pick Market Structure and Liquidity Strategy team. Today, we're looking at how commodities markets are changing as systematic trading continues to grow. Systematic trading involves using data and repeatable rules based processes to make decisions on how to size risk, when to enter and exit, and how to execute, rather than relying purely on discretion in the moment. We'll discuss what's driving this evolution from new technology to new products, as well as observations on what market volatility means for trading behaviors and liquidity. And finally, we'll anticipate what comes next. including the emerging influence of AI. To help unpack all that, I'm joined by my JP Morgan colleagues Max Lee in the Commodities Trading Group and Bico Agazino, who leads commodities quantitative trading.
Guys, thanks for being here. Thanks for having me. Great to be here. Guys, commodities have been in focus this year with shifting macro expectations and elevated volatility across markets. So metals and energy markets have captured a lot of the attention. We've seen meaningful moves across other sectors as well. While geopolitics, trade policy uncertainty, and energy supply have dominated the headlines, I would argue there's a structural evolution taking shape. Thinking back to 2022 and 2023, you had extreme volatility in many commodity markets that brought a range of new market participants. And as margins have stabilized since then, many firms have prioritized digital innovation, investing in machine learning, automation, advanced.
Advanced data processing technologies. So we've seen a broader macro footprint across this space with a wider variety of market participants. And in recent years, systematic participation in commodities has grown across physical markets, derivatives, multi-asset portfolios. And there are several forces behind that. Max, when you zoom out, What have you observed in terms of the growth of systematic commodities in recent years, in terms of who's participating and and what are the key drivers behind that?
I think the first thing that's important is like to describe what is systematic trading. If you looked when I started, which would have been close to to twenty fifteen. the line between discretionary and call it quant, I think, was was a lot larger. Now, even in discretionary pods, everyone is looking at data, everyone is modeling. And so how do you actually define what is signal driven versus systematic has has honestly become a key point. Generally when we think about the world, systematic has pretty much a full automation component to it. Everything from data consumption
How have volatility spikes since 2022 changed who participates in commodity markets?
to signal origination. to risk management, to the market participation, all of that should be end to end and assign some degree of risk budgeting from a top level kind of organism. As we look at like who started to participate in that format, I think that people have gravitated towards the ability to show, you know, not just a backdest, but kind of how an idea can evolve and perform through different regimes. And especially if you look at the the commodity asset class, that's really important, right? I mean, we you spoke about some of the volatility that has been in the asset class since really COVID. I mean, I think if you looked prior to COVID, It was a generally low vol regime. We had idiosyncratic shocks that would occur, but
generally it was hard to get meaningful return. As soon as you have, you know, the headline that everyone knows where oil went to negative through some of the inflationary recovery, then into Russia Ukraine, extending all the way then to obviously the Iran uh war this year. More and more people have become interested in commodities, but a lot of those people are not necessarily commodity experts. And one of the ways that then people get comfortable with managing that exposure is can I do something that is fully process driven that then I can go to my CIO or my PM or whomever it may be and show exactly like what we expect the distribution of that return to be, which is really, really important in this asset class.
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Chapters
8 chapters
1
What is systematic trading and why is it gaining traction in commodities?
0:02–2:34
2
How have volatility spikes since 2022 changed who participates in commodity markets?
2:34–5:24
3
What role does automation and API connectivity play in unlocking OTC liquidity?
5:24–8:07
4
Why are physical‑commodity constraints important for systematic models?
8:07–10:57
5
How does systematic execution create both alpha opportunities and new risks?
10:57–13:59
6
What are the biggest challenges when building a systematic commodity trading platform?
13:59–17:09
7
How is AI reshaping research, risk monitoring, and execution for commodity traders?
17:09–20:23
8
What future milestones should participants expect as systematic trading matures?
20:23–21:18
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