Our Approach to Managing Risk
Build a favorable average price through
Market Scenario Planning.sm
What do a grand master of chess, a four-star general and a successful business person have in common? They strategically plan for the expected and the unexpected, rather than make a prediction in the hope that the prediction holds true.
Market360 risk managers take the same strategic approach with our price risk management methodology, Market Scenario Planning. It’s a math-based, systematic process for envisioning a full range of commodity price scenarios. Our objective is to help business people like you protect your business from adverse price movements while still allowing you to take advantage of price opportunities. The end result for you? A favorable average price for all sales or purchases over time.
The process begins with questions that shine a light on potential future scenarios.
- Which market scenarios are most likely?
- What other price scenarios are possible?
- Across market scenarios, what strategies best position customers to capture opportunity while protecting them from risk?
See the potential outcomes on decisions made.
What’s more important to the health of your business? The price you received on your first commodity purchase or sale? The second? Or the last? Obviously, every purchase or sale is important – and transactions with greater volume carry more weight on your overall average price.
At Market360, we consider “weighted average price” to be the best metric for assessing pricing decisions. Weighted average price paints a picture of your revenue potential in the future, as well as how you’re doing today. It equates to the average of every pricing transaction within a time period, weighted by size.
By using our weighted average price calculator, we are able to consider multiple factors that affect your decisions, such as cost and risk, over an array of market conditions. We show the potential effect of various strategies on your weighted average price, which helps you implement strategies that are the most impactful to your situation.
For illustrative purposes only using feed as an example.
Prices do not include commissions and fees.
Assessing potential outcomes to determine weighted average price – a simplified example.
Avoid emotional decision-making.
When you know your weighted average price, you’re better able to maintain perspective on pricing decisions. When you stay focused on building a solid weighted average, you avoid the tendency to evaluate success on the basis of one sale or a short time period. You keep emotions out of your decision-making. Some of the costliest mistakes occur when emotion guides decision making.
Human emotions usually move in sync with market phases. Breaking the market’s hold on your emotions is the first step to strategically managing price risks and opportunities, and positioning your business counter-cyclically to the market.
Market Cycle of Emotions
Emotions you may feel during a market cycle of high and low prices.