The types of risk in commodity trading

Trading is risk management dressed up as buying and selling. The job isn't to avoid risk — it's to take the risks you understand and get paid for, while neutralising the ones you don't. Here are the risks that show up on every desk.

Price (flat-price) risk

The commodity's outright price moves between when you buy and when you sell. Usually hedged away.

Basis risk

The physical price and the hedge (futures) price don't move perfectly together — the leftover risk after hedging.

Counterparty / credit risk

Your supplier or buyer fails to pay or perform. In niche trades this is the risk that can wipe you out.

Performance risk

A counterparty delivers late, short, or off-spec.

Political / country risk

Sanctions, export bans, expropriation, war, sudden regulation in the countries you touch.

Currency (FX) risk

You buy in one currency and sell in another and the rate moves against you.

Operational risk

Something in execution goes wrong — documents, vessel, inspection, fraud.