Analyst to Trader, instead of ops - Physical Commodity
As title, wanted to see what people think about the transition from doing fundis as an analyst to eventually being a trader:
For the physical commodity trading world, the most common advice for anyone who wants to be a trader has always been "start as a scheduler/ops/logistics and move to trader" or "do a TDP." What about analysts? I would imagine having spent time with the fundamentals team is important for a prop trader or a financial trader. But what about in general as a career start or skillset to acquire before becoming a trader?
For anyone in a physical shop who starts out as a fundamental analyst or spent time in the analytics team, what's your experience? would you recommend it?
It is highly unlikely you will become a physical trader without actually doing physical. Paper trader on a physical desk yeah can be an option. But if you don't know the physical working of your supply chain how will you trade physical? There is a reason why all physical shops start people in Risk, Ops and Analyst roles. I would go even as far as to say just Risk + Ops can get you started as a junior on trading desk. The trading analyst role is important but you can pick it up while on desk.
It definitely happens but is very situational. The reason people say- do a TDP is that it is clear and (relatively) fast The process leads to a result, whether pass or fail. With every other path to be a trader, it’s murkier. You can do something else for years, hoping to “break in” and be wasting your time because the powers that be think you don’t have potential or would rather keep you where you are.
For fundamental analysts there are pros and cons. There are way fewer fundamentals analysts than commercial analysts or schedulers, so you don’t hear about it as much.
The pros are that many set ups have you reporting to traders and sitting next to them. So it’s easy to learn and contribute directly to the team. And if you are good, you can make a huge pnl impact, which helps your case to do whatever you want as your next job.
The cons are that ya you usually need ops experience before trading physical, so even if you are judged good enough to be a trader, you might have to do more rotations. And another con is that many set ups are actually totally separate from traders or don’t really do any work that affects pnl at all. Think someone that just presses f9 to refresh numbers or spends hours updating slides but has no idea how to form trade ideas. This pool of people is actually a lot bigger than the pool of good analysts. And leadership for these people is often clueless about the market, stuck in old ways of doing things, has no idea how to add value themselves. So if you are asking about- should you do it- you should take this into account and feel out what you are getting into.
It definitely does happen (seen it at BP, Shell, Vitol, and of course hedge funds if you want to trade paper) but it’s a low sample size affair with no set formula.
I think it also depends a lot on the type of commodity. Like you said an analyst would lend themselves better in a financial/spec role. As others mentioned you can't really trade physical without actually knowing how the physical moves. More data heavy and transparent commodities (i.e Natural Gas & Power) can greatly benefit, especially on the financial and spec side, from having an analyst style background. If you aren't just refreshing models but actually building them and learning where to gather the data/why you're gathering it/how it all fits together and are able to translate that into actionable trade ideas/views (put the pieces together) you could eventually make the jump into a trading seat. You really need to know your stuff though and not just regurgitate common knowledge that you can pick up from any vendor.
Thanks all for the comments. Forgot to mention: for context, I work in gas and power, which probably results in my experience of seeing some spec/prop guy having spent time with the fundís.
I am not sure if I remember this correctly, but I think marcellus_wallace also have some experience in fundis before becoming a trader. Would love to hear your opinions too. Much appreciated.
Hey, my experience is biased. I trade mainly financial "gas&power" (so super data heavy) and I started out my career skipping ops/risk to become a desk analyst directly many moons ago.
If your preferred goal is to become a financial trader one day who is focused on fundies/risk-management/data-heavy I would recommend the path to anyone. If you want to be a "master of the tariff", be part of the group that changes how a midstream firm operates, be the one who decides how an index price should settle then you should really try to get your hands "dirty" early on. I have worked in both and know people in both who are successful they are just very different jobs, different skillsets and fit different personalities.
Our entire day-to-day (financial driven desk) is spent building, discussing S/D models and finding alpha. So for this reason similar to equity funds/pods who hire former bankers and PE associates our preference by far is to hire former fundamental analysts. Typically we discount people with ops/risk experience as they have not had the chance to develop the more key financial/statistical modeling skills we require. Again similar to equity pods, we expect analysts to build models from ground up, stress test and over time create "alpha". So not working in ops is not an excuse if an FM occurs that impacts your region/model and you do not understand how/why. Likewise to equity funds it goes analyst --> sr analyst / sleeve --> own book and all of the timing/path depends on alpha generation.
I do not think we operate/expect much less from any other financial trading desks so truly that is the job.
So ultimately if your interest leans to that sort of work long-term then for sure fundamentals is the best starting path these days. If you think true edge will be found on the physical nuances, tariff issues and so on you want to be in a seat where you will see that stuff much more up close right away.
Lastly, have seen fundamental analysts move to "asset management" style roles but typically they had to take a step back in their career or learn other skills first (hybrid cash trader/ops role sort of thing). It is very rare for desk heads to hire traders who directly manage an asset book without direct physical experience. As again the skillsets are so different and then I really do need someone who is a master of the tariff first and above all. Hope that helps.
This does help a lot, thank you.
Ultimately, I was looking for more perspective. It’s a little bit harder to find a lot of analyst other than my own manager, let alone junior analyst.
My mentor on the floor is a pure spec gas trader, and I work very closely with him, mostly combining basic micro theory and lots of time series analysis & econometric to formulate S/D model, do weather forecast. Which is why I kinda want to know whether this path is viable. So what you said hit the nail for me in some senses.
I've seen you mention tariff trading when talking about physical on this forum before but I still don't understand what it means. Is "tariff" in this context just limited to gas/power.
Not impossible but not easy. Hard to trade App/Gulf on TGP when you don’t know how to run your gas primary, or that there is actually a FH restriction coming in next week limiting your bounce from your primary meter so you have to dump it maybe somewhere else or find someone with primary take away at your delivery meter.
You just don’t learn these things as an analyst, and you can’t step into a phys trading role without knowing them.
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