CTRM stands for Commodity Trading and Risk Management and ETRM stands for Energy Trade and Risk Management. CTRM software is a specialized trading and risk management software created for commodity trading businesses whereas ETRM focuses on the needs of the niche energy trading businesses. Both  provide advanced and sophisticated software that allows firms to manage critical business processes involved in trading commodities by capturing data related to accounting, contract management, operations, logistics, inventory management, order processing, regulatory tax reporting and more. 

Hedging refers to a strategy of reducing risk exposure. This is done by taking an offsetting position in a closely related product or security. Hedging against investment risk means strategically using derivatives to offset the risk of any adverse price movements.

Types of hedges:

• Perfect hedge: A position undertaken by an investor that would eliminate the risk of an existing position, or a position that eliminates all market risk from a portfolio. In order to be a perfect hedge, a position would need to have a 100% inverse correlation to the initial position.
• Imperfect hedge: The hedger’s gain and loss in the spot and futures market are not fully offset and the hedger will end up with some gain or loss.
• Long hedge: A futures position that is entered into for the purpose of price stability on a purchase.
• Short hedge: A short hedge protects investors or traders against price declines.

P&L management refers to how a company handles its P&L statement through revenue and cost management. A healthy, growing business requires accurate management of profits and losses. Strategic P&L management guided by a detailed income statement helps a business in keeping their earnings positive and minimize expenses.

Hedge accounting refers to a method of accounting where entries that are made to adjust the fair value of a security and its opposing hedge are treated the same. Hedge accounting helps reduce volatility created by repeated adjustment to a financial instrument’s value, known as fair value accounting or mark-to-market.

It serves as an alternative to more traditional accounting methods for recording gains and losses. When treating the items individually, such as a security and its associated hedge fund, the gains or losses of each would be displayed individually. In hedge accounting, both the line items are treated as one because the purpose of the hedge fund is to offset the risks associated with the security. Instead of listing one transaction of a gain and one of a loss, the two are examined to determine if there was an overall gain or loss between the two and just that amount is recorded.

Commodity risk refers to the uncertainties of future market values and of the size of the future income which is caused by the fluctuation in the prices of commodities.

Types of commodity risks:

• Price risk: It arises from an adverse movement in the price of a commodity as determined by forces outside the control of the organization.
• Quantity risk: It arises from changes in the availability of commodities.
• Cost (input) risk: It arises when adverse movements in the price of commodities impact business costs.
• Political risk: It arises from compliance or regulation impacts on price or supply of commodities.

A business should consider managing commodity risks where fluctuations in commodity pricing and/or supply may impact on the business’s profitability.

Derivatives are financial instruments that derive value from an underlying asset. The underlying asset can be equity, fixed income security, currency or commodity. There are several types of derivatives including forwards, futures, options, swaps and warrants. Forwards refers to contracts between two parties over-the-counter wherein there is no exchange insurance. Futures are a contract to exchange obligations on a future date. Options are one category of derivatives and give the holder the right, but not the obligation to buy or sell the underlying asset. Swaps are customized contracts traded in the over-the-counter (OTC) market privately. Longer-dated options are called warrants and are traded over-the-counter.