ETRM software is specifically designed to calculate position, manage the lifecycle of trades, and offer real-time valuations and reports. So, why are some risk managers still using spreadsheets to manage their trade portfolios?
Well, there are some benefits to using spreadsheets. They are:
- Easy to use and modify
- Customizable and flexible
- Easy to adopt because you already have them (and who doesn't use Excel?)
At Molecule, we've seen some impressive spreadsheets. We've also seen how detrimental spreadsheets are for risk management. One error, something as simple as a typo or deleted cell, can throw off reports and cost thousands of dollars.
As your portfolio grows in complexity, so do your spreadsheets, and so does the likelihood of errors and miscalculations.
"We understand that when you're giving up your spreadsheets, it can feel like you're giving up some of your freedom. With Molecule's ETRM, however, what you get in return is more power, capability, and security, along with a great interface." – Tamasin Ford, Chief Operating Officer at Molecule
Whether you're a company with a growing portfolio or still clinging to your spreadsheets out of habit, read on to see how the move to an ETRM will transform your efficiency, valuations, reporting, and auditability.
1) ETRMs improve efficiency
Spreadsheets may be easy to use, but they lack efficiency.
Where ETRMs automate most tasks, spreadsheets involve tedious manual entry of data and calculations. Investing in an ETRM reduces manual errors by streamlining data entry workflows, automating reports as you trade, and effectively managing higher volumes of data.
For instance, marking trades in a spreadsheet involves lots of copy-paste. First, copying prices and then copying formulas. Molecule's ETRM allows you to use a simple spreadsheet upload template or our modern API endpoints to load forward curves with minimal user effort.
Then, our valuation engine kicks in to automatically mark your trades, calculate P&L and several other metrics, and roll up the value of your portfolio or output risk metrics on reports. You'll be tracking these values every day of a trade's life. With spreadsheets, that either grows into an unmanageable mess of daily data, or you don't have a comprehensive view of your trades' lifecycles over time.
ETRMs also improve efficiency because of their integrations. Unlike spreadsheets, Molecule integrates market data from 15+ exchanges, industry-standard data providers, and every North American ISO. This market data automatically uploads into our ETRM and creates a new position and valuations in near real-time.
Although you'll still have some manual trade entry with an ETRM, it's as easy as Excel with our spreadsheet upload tool. For a single trade, you can easily enter it on our Trade screen.
ETRMs will match or exceed your spreadsheet's efficiency on nearly every daily task.
2) ETRMs provide accurate reports for better decision-making
Up-to-date data reduces risk through more accurate, relevant, and timely reports. Since spreadsheets require manual data updates, there may be times during your trade's lifecycle when data and reports may be outdated and misleading.
For example, here's how quickly your data updates in the Molecule system:
- Daily market data updates or whenever user marks are loaded
- Trade data updates in real-time
- Valuations calculate in near real-time
During times of uncertainty and volatility, accurate reports are vital to assessing risk exposure, making informed decisions, and proactively mitigating risk. ETRMs help you build reports from real-time market data for hedging, compliance, and monitoring up-to-date positions, P&L, and exposure.
Want to learn more about how ETRM software helps you manage portfolio risk? Check out our blog, "3 Ways to Use CTRM Software to Manage Risk."
You may have some team members reluctant to abandon their spreadsheets. With Molecule, they don't entirely have to. If you pair a spreadsheet or other BI tool with Molecule's APIs, the Molecule system updates your external data and reports each time you access it.
3) ETRMs provide tested and comprehensive valuation and risk metrics
There are a lot of potential calculations and metrics to help you measure and assess the risk exposure of your portfolio. While spreadsheets require you to build and test each individual metric, ETRMs provide a comprehensive set of built-in valuations and advanced analytics.
Molecule's valuation table, for instance, has 150 columns of data and metrics we use to measure risk exposure.
Here are just some of the valuations and metrics that Molecule calculates:
- Automated Position and P&L Calculations
- Multiple Option Models (including Black-76, Turnbull-Wakeman)
- Option Greek Calculations
- Volatility Implication
- Strike Interpolation
- UOM Conversions
- FX Conversions
- Balmo Calculations (aka Decay)
- VaR (Monte Carlo, Delta-Gamma)
- Priced/Unpriced Calculations
- Inventory Valuation
- YTD/QTD/MTD Calculations
Although spreadsheets may be easy to start and run, they can only do a small fraction of what an ETRM can do before they start to become overly complex and error-prone. A spreadsheet that implemented this entire list would be massive and unwieldy.
Consider day-over-day reports. It's challenging to build YTD/QTD/MTD reports without replicating data across multiple spreadsheet tabs, which will rapidly become complicated in the volume of data and ensuring that formulae are correct.
An ETRM, on the other hand, has tested and validated calculations for complex reports and metrics. You can see today's P&L with calculated changes from yesterday's, last month's, and even the previous year's metrics in minutes.
Since our ETRM integrates with cQuant.io, Molecule customers can access advanced analytics, what-if scenarios, and other complex analyses.
Molecule's automated valuations, reports, and data visualizations give you a holistic view of your risk exposure and the value of your portfolio.
4) ETRMs hit the sweet spot of standard approaches and customizations
Spreadsheets are generic and multi-purpose, but sometimes a fit-for-purpose tool gets you much further.
An ETRM streamlines your unique business processes because it understands commodities, trade lifecycles, risk metrics, and more. While spreadsheets can only be custom-built, ETRMs have tested and reliable industry-standard features and data models available right out of the box – so you will need less customization. The customizations you do need will leverage this robust foundation.
For instance, Molecule's implementation team builds the following customizable features directly into our ETRM app:
- Custom fields for grouping, mapping, and reporting
- Custom reports for tailored analysis of your portfolio
- Custom curves built at your direction
The Molecule platform also allows you to:
- Control how trades are entered, filtered, sorted, and grouped
- Remove, select, and drag columns for trades and valuations
- Control trade amendments, such as cloning, transferring, splitting, and voiding
In turn, ETRMs can offer just as much – if not more – customization than your spreadsheets.
5) ETRMs prioritize design and usability
Optimal design is vital to user experience because it enables frequent updates and facilitates ease of adoption and usability. That's why design is essential to Molecule. Our application's sleek, usable interface makes importing trades, assessing risk, and understanding your trade portfolio easy and efficient.
Moreover, software should be designed to be adapted and updated. It should support seamless updates that won't disrupt customers or its infrastructure.
To stay on top of risk, software needs to stay on top of the industry's demands and customers' needs. That's why Molecule has new software releases roughly every two weeks. We constantly improve our platform to stay on the cutting edge of technology.
6) ETRMs provide enhanced scalability
Although spreadsheets can be a great business tool, you can quickly outgrow them as your portfolio grows. They're not able to scale to business needs like an ETRM.
The more trades you import into your spreadsheets, the less functionality and control you'll have. ETRMs, on the other hand, were built to handle considerable amounts of trade data. The scalability of ETRMs depends on the type of ETRM and where it is hosted.
- Legacy ETRMs that are single-tenant/on-prem
- Cloud ETRMs that are single-tenant/on-prem
- Cloud ETRMs that are multi-tenant/SaaS
Want to learn more about ETRM deployment? Check out our blog post, "The Business Value of Moving to a Multi-Tenant SaaS ETRM."
To maximize scalability, multi-tenant cloud ETRMs are the way to go. With a multi-tenant, cloud-native ETRM like Molecule, we can scale more servers based on the day's trade load so your team doesn't have to worry about system outages or slow load times. Molecule achieves our level of scalability with the best technology on the market, including Kubernetes, Docker, and AWS.
7) ETRMs are more auditable
Software security and auditability are crucial for sensitive trade data. If your company prioritizes both of these, you shouldn't use spreadsheets for risk management.
You can't see the history of a trade in a spreadsheet the way you can with ETRMs. With no audit trail or record of the lifecycle of a trade, monitoring risk exposure in your portfolio will be challenging. You also cannot trace if someone broke a formula, deleted a cell, and so on.
Not only does Molecule provide audit trails for all of your trades, but our calculation engine is protected by layers and layers of tests, backtests, and change management processes to ensure nothing gets broken and valuations remain accurate.
With Molecule's ETRM, you also have more control over authorized user access – allowing you to designate which team members have permission to enter, modify, or view different aspects of your portfolio.
An ETRM incorporates everything you love about spreadsheets with increased efficiency, scalability, and usability.
Check out our latest case study to read more about how moving from spreadsheets to an ETRM can streamline your trade risk management.