What is Cross-Asset Trading?
Certain concepts have been mulled over for decades and yet, despite a definite use case have not seen implementation. The major cogs in the wheel have been the lack of technology and even more importantly the lack of will to do so. From a multitude of reasons like behemothic centralized juggernauts that are buried under the weight of legislation and red-tapism, there is also an invisible shroud of anarchic nepotism which doesn’t allow to “let go”
The roadblocks have been in a multitude and yet the advantages of cross-asset trading are so very compelling that with time, it will completely stream roll all the impossibilities that stand in its way.
Now having said that, what really is cross-asset trading?
While we have been used to dealing with vanilla straitjacket trading exchanges that allow for a varied number of options in trading in the same asset class, there have been no platforms or a technological breakthrough that has facilitated a seamless hop over from one asset class to the other on the same platform in the form of a cross-asset pair. A cross-asset trade could be a hybrid trade between say, Commodities and Stocks or Forex and Stocks or Commodities and Forex or Cryptocurrencies and Stocks or Cryptocurrencies and Commodities or Cryptocurrencies and Forex.
Cross Asset Trading involves more than creating a new trading platform and rationalizing the appropriate correlations and data feeds from various API providers to make the system operational — it requires attacking those individual challenges with a combined solution.
But how far do the centralized Exchanges wish to amalgamate legacy siloed trading desks? What is the blueprint? And most disparagingly, what are the associated risks and rewards?
For now, the reward to risk ratio is way too favourable to put it on the back burner. Action is demanded and the first mover will be etched in history as creating something that’s truly disruptive and an archetype game changer.
Now, let’s project an exotic cross-asset pair that will open a kaleidoscope of opportunities in global trading opportunities.
There are many companies whose fortunes are related to the volatility and movements of specific commodities. For example, gold mining on one hand and gold selling companies on the other.
Or crude with plastics or energy providing companies. So, consider a cross-asset pair between Brent crude and Duke Energy. The fortunes of Duke Energy will depend on the fluctuations in the price of Brent Crude and the consumption of energy. How this can translate into a trading pair will be explored in the next part to this article.
