Johannesburg, 15 Nov 2004
Local company Grainvest, an agricultural futures and options specialist, trading on the South African Futures Exchange (SAFEX), recently purchased Tradeworx software with a view to simplifying the processes, procedures and information management of its clients` derivatives portfolios.
Tradeworx is a futures and options trading software solution developed by Barone, Budge and Dominick (BB&D), a South African development house. The product was initially developed for Grainvest as a tool to reduce risk, provide accurate information at the right time and to illustrate a snapshot of clients` open futures and options exposures.
Grainvest required a solution that would provide a "live-link" from SAFEX through an options program that is customised for the local market.
Previously, a spreadsheet was used together with a small options program to save client information and track positions with manually updated SAFEX trades and prices. This process did not track client`s positions accurately, and was time-consuming, cumbersome and clumsy.
Says Russell Du Preez, director at Grainvest: "Accuracy is key for traders in futures and options markets and inputting information manually into a spreadsheet had its fair share of problems. An error could have major repercussions, which could equate to a substantial loss of money and by implication, unhappy clients. Tradeworx has provided us with a touch-of-a-button solution that eliminates the `human error` factor while providing our organisation with instant, daily updates through its live SAFEX feed."
The growth of the South African futures market is a burgeoning one that continues to grow and is comparable to the more established futures exchanges; except that, in an almost about-face to the older exchanges, the trading of agricultural commodities in the local market was preceded by the trading of financial contracts.
Due to the high leverage, the futures market can be risky and access to timeous management information with the facility to map out `what if` scenarios is a distinct, if not absolutely necessary, advantage. Grainvest has capitalised on this advantage. Factors such as the effects of time decay, variables and changes to market volatility need to be carefully weighed-up and understood for informed decisions to be made.
Through Tradeworx this complicated process is simplified through the graphical interpretation of information and variables that affect the derivatives prices.
Du Preez continues: "Plotting positions and movements was difficult and an extensive use of spreadsheets was required. Tradeworx`s `positions and movements` screen provides us with an overview of each deal`s trade date, expiry date, implied volatilities and futures prices, along with the strike price and volatility tracking of the ubiquitous option `Greeks` -- a set of risk parameters that need to be closely monitored."
Managing options by monitoring hedging positions - a strategy designed to reduce investment risk using call options, put options, short-selling, or futures contracts - is made simple by Tradeworx due to its ability to monitor and track the prices and volatility of the various derivative instruments.
A trading company`s exposure to the market is an area that is continually scrutinised and needs to be monitored and managed very carefully. Traders are also being called to account on the always-important compliance issues and revisions there of. The programme factors in rules, restrictions and reports, highlighting risks and exposures and allowing the business to trade with peace of mind.
"Controlling the entire dealer floor is a difficult task and instead of managing this process manually, Tradeworx allows for super-user access that provides a view of the company`s total exposure and not just each dealer`s trades.
"The implementation was relatively simple and BB&D assisted us with the task of ensuring dealers were trained to use the system proficiently. The program is user-friendly and within no time at all, our dealers were able to capitalise on the benefits of Tradeworx," says Du Preez.
Grainvest has implemented the solution at its head office in Centurion and 13 of its traders use the software. Future plans include implementation at the company`s other seven branches countrywide, a move that will see the system being used by a total of 28 professionals.
"It is difficult to highlight a rands and cents return on investment as how can one quantify a potential error that could cost thousands or even hundreds-of-thousands of rands? We, however, we have seen an increase in efficiency and productivity through the availability of accurate information at the correct time. It`s enabling us to make consistent, informed decisions thereby predicting more lucrative choices for our clients. Tradeworx has made a massive difference to our business and provides Grainvest with an indispensable tool for the futures and options markets," concludes Du Preez.
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