Can someone shed some light on the differences in "commodities investing" between the following?
- a commodities group at goldman / morgan / etc
- an independent HF (andurand, rokos, etc)
- a trading house (glencore, cargill, etc)
I know they all try to make money via commodities, but what are some of the differences? Not sure which is most suitable for who. Thanks!
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I’m not fully in the industry yet but I’ll give it a shot… someone more informed please hop in to correct me. Going to generalize a lot here.
Banks (JMP, GS, Citi) are mainly market makers. Buying and selling futures/ options while minimizing risk to make their tiny slice a thousand times a year. Traditional S&T.
Hedgefunds will take speculative positions using futures and contracts, but are unlikely to take physical delivery of the commodity. Taking on risk to make a return for investors.
Commodity shops do a little bit of everything. Physical trading is their bread and butter. Getting commodity X from point A to point B. Can make money while doing this (time arbitrage, geographic arbitrage, etc).
Hope this helps
Recently moved to a commodities HF from a merchant so I can talk about the last two you mentioned. HF will be pretty much spec trading which you base off your own analysis but depends on head honcho.
The merchant shops are a whole different beast because yes at the most basic level you are moving a product from point A to point B, but you can make it much more interesting even when you are hedging. These days, they also do asset optimization so you also have to deal with your own mines, storage, etc. IMO one of the most fascinating area in commodities but it's very tough to make it as a "trader" in those places.
Why did you love from a merchant to a fund?
Thinking of doing the same thing
To be honest, it wasn't a completely voluntary move. I was pushed out because I didn't perform to the level of some of my peers. But nonetheless glad they were clear about it and wasn't like I was fired one random morning.
I happened to have a good friend at the fund I am at now so I was able to quickly find a new job.
Isn't working at a fund harder b/c of tighter risk limits and lack of physical expertise? Why do you think you'll be better at the fund?
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