commodities trading - moving from physical to paper?
How often do traders make this move, perhaps from a Vitol/Glencore/BP type physical shop to a bank/hedge fund trading paper?
Does knowledge from the physical markets add value to paper trading, and how receptive are these firms to hiring physical traders?
All the firms you mentioned in your first sentence trade paper with lots of size.
Exacty. If you nail a Glencore gig, sit on it, no need to worry about exit opps.
Does knowledge from the physical markets add value to paper trading, and how receptive are these firms to hiring physical traders?
DEFINITELY. Having storage in NYH or the West Coast gives you some insider information as to who maybe short product. It gives you clues on what might happen to the spreads not neccessarily flat price.
[All the firms you mentioned in your first sentence trade paper with lots of size.]
Correct but there's a separation between the physical business and the paper business within them, just as there is at a place like Morgan Stanley which i believe even has their physical guys working out of a separate office.
So let me rephrase my original question - how common is it for physical traders to fully transition to a paper role (could be either speculative as in a hedge fund or investor products focused as in a bank)? Part of the larger question of how exactly limited are exit opps for physical traders?
I'm considering this career path so any advice is appreciated guys.
Most of those firms are the exit opps, the only reason people leave is when their pay is limited and someone will give them more guaranteed up front. There is a real value to trading physical versus paper, in the last two years we have seen this for sure and guys stuck trading paper sure wish they had assets or physical at times.
All good traders will transition over time to trading paper and physical. But it is very hard to trade paper in certain markets when you did not trade physical or don't fully understand the physical, that is a good way to get run over. Likewise you can add on size when you know the paper is "over-reacting".
If you really are interested in a career in commodities, I suggest you stop looking for "exit opps" and "hedge fund jobs 10 years down the line" and focus on where you can best learn this business in and out. Commodities is a ground floor business, you won't be near a trade desk at most of those for at least 18-30 months, you will be in mid-office/back-office. When my firm interviews for new grads we assess this factor big time, this is not like trading equity options or rates, most of this stuff ain't written in a book somewhere. You need to learn from the ground up, and those kids we see that do not want to put in that time we usually pass on. I am sure all other firms are the same.
Again it's about $$$, sometimes a bank pays more, sometimes a physical shop, sometimes a hedge fund. But no one is going pay you till you master the business from the ground up.
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