Commodities trading in Australia
Two years away from graduation, and after a fair bit of research want to try for commodities trading. From what I understand, it's a long (3-5 year) pathway to trading from graduation. I'm studying a bachelors degree in economics, and have the option to do honours if I want. How should I best use the next two years to maximise my chances of breaking in?
For graduate opportunities - the only one I found that has strong recognition is the Shell Trading Analyst program - are there any others? Would the VivCourt Energy division fall under this? Are there any internships that can be applied to in the penultimate year that are directly in commodities trading?
"How should I best use the next two years to maximise my chances of breaking in?"
Read every book you can on commodity trading. Figure out what commodities you are interested in and read those specific books too. If you have some extra cash then open a brokerage account and trade very small volumes. Make this one of your hobbies. If you find yourself not caring enough to keep it up as a hobby then that probably tells you how interested you actually are in the career path. Having money at risk will make you really follow the market and learn a lot about it. Find alumni on LinkedIn and reach out to them and ask about their path, their job, lifestyle, etc. Learning about different companies and their employees is very valuable when deciding what path you want to go down. If you can't land a gig at the Shell's of the world right out of school then don't sweat it. I just came across a guy on LinkedIn that is trading crude at a major and his first job out of college was selling pharmaceuticals. The cream rises to the top eventually and this is a long road we are talking about. The main goal should be to land an internship in a role that is closely related to commodities. Could be at a pipeline company, mining company, etc. Doesn't have to be trading directly. You can use that internship to leverage a better full time role when you graduate.
Do you have any books you would NOT recommend? For example, I have heard that Metal Men is mostly BS so it's more for entertainment.
I don't know metals well so I can't speak to that. All I can speak to is what I have read. King of Oil, The Art of Grain Merchandising (the ideas discussed here hold true in most commodity markets), Natenburg's "Option Volatility and Pricing" (this one is phenomenal), and Oil 101 come to mind. I would do some searching on this site as well for more.
Thanks for the advice. What qualities do you think lend themselves to the cream of the crop commodities traders? Also, regarding the internships - I think I could go for a BB S&T internship - would this be a strong choice, or would a mining/pipeline/shipping option be stronger?
"What qualities do you think lend themselves to the cream of the crop commodities traders?"
1. Enjoy solving puzzles
2. Quick thinker
3. Great with people. I have seen some really smart people that understand trading inside and out really struggle because they aren't likable. Who wants to work with a weirdo?
4. No ego. That means willing to do mundane shit for a bit to learn the business and show that you are willing to help the team where necessary. That means getting ragged on by others and dishing it back. It builds trust among the team and a desk needs to trust one another. Nothing is beneath you. At the end of the day you are in charge of the desk and there might be times you have to step in to do other people's job.
5. Good at thinking about secondary and tertiary impacts. e.g gasoline pipeline flowing from the US gulf to the east coast gets shut in. What impacts do you expect to see in the market? The answer is not just expensive gasoline in Philly.
6. Effective/confident communicator. Understanding your market is only part of it. The other part is convincing others that you understand your market. Your counterparties need to think you know what you're talking about. The people on your desk need to think it. Your boss needs to think it.
7. And last, but definitely not least, the ability to stomach risk. As a trader you are going to have the potential to lose millions of dollars in a day if you fuck up. Actually think about that for a second. Millions of dollars are at risk based on **your** decisions. This isn't school anymore in your theoretical classes. If you fuck up bad enough you will be fired before you the day is over. Can you handle that stress and make clear headed decisions? I have seen people very smart people absolutely buckle at the idea they might lose some money. If you put on a trade for a cargo of crude oil and it starts to go against you do you have the stomach to stand in there and keep telling yourself that it was the right call? To succeed you need the perfect blend of enough arrogance to think you're right but also enough humility to know when you fucked up. It is a tight rope to walk.
"Also, regarding the internships - I think I could go for a BB S&T internship - would this be a strong choice, or would a mining/pipeline/shipping option be stronger?"
What kind of person are you? In the physical world you are going to be dealing with a lot more blue collar types. The people actually working at the mine, the grain elevator, the refinery, and the flour mill. You need to have a relationship with the farmer, the oil producer, etc. You might need to get on a plane and go visit some farmers in Kansas to see how you expect the wheat to be for this crop year. You might need to get on a plane and fly to Midland, Texas to meet with the guy that runs operations for 30 oil wells in the area, etc. You might need to go meet with the head of the refinery to talk about how that crude you sourced from Colorado is acting. Physical trading is an operations business first and a trading business second. You can put on the best trade in the world that is a homerun but if that boat doesn't actually get from Australia to the US then it doesn't matter. The derivatives and all that used to hedge your risk are just one piece of the puzzle. All that to say, if you want to learn the most you can about commodities then you are much better off a physical shop. You learn about all the derivatives trading, and what drives those markets, how to structure hedges, etc but you also learn about the pipeline infrastructure, you learn how a refinery, flour mill, or smelter works, you learn how storage contracts are structured and how the operations at a tank farm work, you learn about how different specs matter for certain commodities and how those impact the market... the list goes on.
Are you an actual physical trader? I remember seeing you post about being in a more quanty role and something about living in Costa Rica haha.
I started out on the physical side at a couple different places and then slowly moved into the quanty stuff and derivatives trading. I bailed on the physical stuff so I could go be in places like Costa Rica instead of in that field in Kansas.
Do you mind going through the tertiary impacts of a gasoline pipeline from Gulf to East getitng shut in? I'm not knowledgeable in the oil and gas market landscape so would be helpful if you could.
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