Commodity brokerage (paper & physical)
I was wondering what are the thoughts of the people from the commodity trading industry about commodity brokerage.
- Is there any prospective for futures commodity brokerage (paper side) or is it a dead end like equity brokerage ?
- Is it the same reasoning concerning the prospective of physical commodity brokerage such as a physical LPG broker ?
- What do you think about ethanol brokerage and firms like Starsupply ?
- The golden age of brokerage seems to have ended, but is it still possible nowadays to make decent money as a commodity broker ?
- What are the key or niche players in the field of commodity brokerage (paper and physical) ?
I can speak to all these answers. No longer in the industry, moved to a port co operations role. But spent 5yrs as trader & broker. Going anonymous because it is too easy to dox me.
1) Yes there is. However, it will not be in listed, screen based derivatives. In ags, things like Blk Sea Wheat/S. American Bean contracts are traded on Clearport but heavily rely on voice brokers to execute
2) No issue here, just tough to break in and build a book. You will likely join an established book and be their bitch for a year, then start to get small accts and snowball from there. Will be old school shit, like having to memorize lunch orders etc.
3) Ethanol brokerage is a funny business. Piles of money to be made. It is the sweet spot of volume & brokerage rates. Starsupply (it's SCB now) is a good spot. I think they do around 15-20% of CU. Top CU brokers can get into 7 figs easy peasy. Work hours are 730-400
4) It has ended, but there is so much money to be made still. Location focused platts assessments and bilateral paper contracts will be the wave of the future.
5) SCB, Atlas, Marex, Tradition, BGC, in energy there are a number of small shops in Houston and NYC of unknown rep
Bilateral/non-cleared paper markets are really intriguing. At one point in my career we were brokering bilateral (non exchange cleared) black sea wheat options between Ukrainian exporters based on a platts assessment. Brokerage rates were $1.00 per M/T in an out. Book a few 20,000 MT Fly's and take it to the bank.
Thanks for this great response, really helpful.
What do you think on biodiesel brokerage? Lots of govt. led mandates in Europe to increase % of biofuels in petrol pumps as well as potential applications for sustainable aviation fuel. Fairly opaque market so broker has more of a role to play than in other listed products?
What would good biodiesel brokers be taking home?
Finally, is it possible to be successful without huge amounts of frequent drinking? I know the industry sometimes has that (unfair?) reputation.
physical biodiesel is incredibly lucrative. Though the long term is limited with the rise of Renewable Diesel imho
"good" biodiesel broker 150-350. Excellent broker 1mm+. The top guys in Bio (some based in Puerto Rico) taking home 3-5 a year
Quite honestly, not drinking will significantly harm your career. There is such a focus on client entertainment (pre-covid) that you will be seen as a wet blanket
Can speak to this as a (former) biodiesel broker - it was a good business turned to shit. All low hanging fruit gets picked off and markets get efficient. Tons of consolidation in the industry and a ton more transparency not to mention that the market doesn't trade per se. It is largely a supply market. Unlike gasoline for instance, the same gallon of biodiesel seldom changes hands more than once between producer and ultimate end user. As such, the need for broker has been significantly reduced - same 3-4 flies hovering around the same turd. Any customer with a "real" bio book, has largely gone direct to the producer. Producers try to preserve their margin by misrepresenting prices officially and trading at significant discount directly with customers. Market spends vast majority of time largely disjointed with what little activity taking place in 10% of time (or less). Money was good, but at this point physical brokerage is a tiny fraction of what it was so ability to capture anything largely limited to brokering compliance credits (RINs & LCFS). These are active markets, but are very one dimensional and largely rely on pre existing relationships, i.e. getting into it will be difficult as a newcomer. This provides a fair if not upbeat overview - good luck!
Thanks for the great info! I got an offer for a ft broker role at on the the firms mentioned. Do you have any idea what the mobility is like to trading and other roles? What does salary progression look like (have a competing offer in sales at a bank and wanna know if progression is similar)? Can't decide which offer to take. Thanks for any input!
Thanks for your input. Do you think agriculture brokerage (paper side) is a good spot to be in and has a future with new markets like Africa coming? Any idea what a "good" broker should take home?
Adding on to the poster above.
Voice over brokers still in demand. In power and gas, freight, and LNG/Coal industries they are making dough through the likes of ICAP, Marex Spectron etc.
Margin varies between shops. Physical can expect to make 0.5% on easily crafted brokerage deals. Paper side can expect good cash from OTC cleared swaps, or options. Futures is quite stable flow of business as well. I expect carbon markets will be the next big thing for brokerage houses in OTC markets.
I know a few brokers making at least 200-350k per year including their bonuses. Life is pretty good as they are online when markets are usually 8am to 4pm. Company expense account for dining with clients. It is a good alternative if you don’t want to be acting as principle/trader.
Do many brokers have trading backgrounds? Is it common for brokers to move into trading roles?
Much more of a 1 way street. Traders who crash out often become brokers with varying success. Brokers can become traders, but only up until 3-4 years of exp. Then the golden handcuffs stick out.
Most don't realize brokers often make more than traders do despite not being as "smart". In black sea wheat for instance, one 100 lot trade makes a broker $2,500 in and out. The house always wins, sure a trader can make more on certain trades. But you would have to average $2,500 in the black on EVERY trade for the year net of desk costs & working capital (in the cash world) to come out ahead. That is not always easy to do.
In my day, our boss made sure that whenever you went on a customer visit you 1) never wore a watch 2) never discussed anything related to personal finance/homes etc. Mostly to keep sensitive traders from getting their feelings hurt they are being out earned by their broker.
Great example of this is a guy at ADM (just a random example). Maybe he is a sr. bio diesel trader. In a good year makes 150-175. ADM would be covered by the most senior broker on the desk making quite literally 10x his customer.
Thanks for the response! In your opinion, what's the difference between an average broker and a "good" broker? Also, how do brokers go about gaining new clients?
Thanks for the post. What would be a way a junior broker can go to a trading role (asking for a friend;)). Stick it out for 2/3 years and apply as junior trader or leave right away, take a big paycut and go to risk or something?
im a former trader turn broker and make more money now
Brokerage is a massive tournament system broadly. If you're in the top 1-3 guys in the product you cover, you'll be outearning the vast majority of traders. That said, there are way way more guys who are making little to no base and working on commissions getting smoked. IMO, the best way to be successful at brokerage is to understand what sort of products will be in demand in like 5 years, and work diligently to build relationships with the guys that will trade that in that time frame. Often times, that means taking a pay cut up front, and spending a lot of time building relationships with relatively junior guys before a windfall.
For example, one of the NGL brokers had the highest buyout seen in the commodities space a few years ago. He started out as a junior guy making no money in NGLs, but he's extremely smart and hungry, and was like half of the traded market as it was picking up. Part of the reason is a lot of his competition were sort of clowns (because the comp wasn't great), so it provided him a massive opportunity to outperform his peers.
Great example is the Starsupply/SCB guys in Cobalt/Battery metals
this is a good story and it was not a buyout. He settled a lawsuit.
Many thanks for all these insightful answers ! Contrarily to my first thouht, your feedbacks make me understand that commodity brokerage has still a bright futures. Especially commodities wich supports the energy transition such as ethanol, biodiesel, LNG etc.
takes all types
I’m an energy broker on the ppr side and all I can say is I regret staying within this space. You build basically zero useful skills, and its hard to do any sort of a parallel transfer out.
The fun seemed to end around say 2015 when the screen became a major source of liquidity. I think its only going to get worse.
I would personally avoid, as I don’t see a 5-10 year path. I’m looking to get out.
I share the sentiment. I trade LNG. Most of the paper brokers mainly provide quotes without knowledge of the physical market. There is very little liquidity in Asia so I honestly don't know how the smaller brokers are surviving. That said, our company mostly deal with banks as they can give a higher credit line.
what is your view on the physical side, is your view on paper shared similarly with physical as well?
no. im on phy side and my income has still gone up year over year....
Being an energy broker gets a bad rap but some guys crush it while alot of guys, maybe even the 95% of guys are just getting by hoping to strike it big when a long-time client becomes a big market maker
Et quos ullam ea qui inventore consectetur dolorem. Et voluptas beatae iste quos quo sit exercitationem. Sit harum assumenda consequatur ad.
Ex eos nisi voluptas animi voluptas dolores. Sapiente aut vel dolorem sequi veritatis quis cum at. Sequi sint ut quas in libero soluta deleniti. Doloremque voluptatem qui quam doloremque dolor dolorum.
Quis ut rerum numquam praesentium velit voluptates. Quidem vero ut placeat qui accusantium quisquam neque. Iusto aut reiciendis cum inventore. Ipsum cum facere molestias consequatur qui. Ex dolore iure dolorem perspiciatis harum.
Et quia rerum magni architecto natus. Enim repellat enim doloribus odit harum sint nemo dolor. Distinctio earum necessitatibus veritatis voluptatem. Nam commodi totam ea unde qui dolorem consectetur.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Alias hic quo omnis vero molestiae harum. Neque architecto officia omnis inventore molestiae hic.
Consequatur enim expedita voluptas dolor. Et eligendi facere laudantium dolorum animi voluptates inventore aut. Voluptatibus harum labore minima iusto est. Repudiandae est est ut facere ipsa blanditiis tempore. Beatae voluptatibus nisi quod deserunt ab illum tenetur velit. Ducimus deleniti esse inventore sed.
Sint enim ipsum magni alias laudantium saepe deleniti. Et ut et laborum odit. Non voluptatibus impedit quo repudiandae esse impedit quia. Asperiores dicta nihil explicabo qui explicabo.
Velit nobis maxime cupiditate esse sunt. Tempore molestias nulla beatae sit ut sint eos qui. Nihil id aut distinctio soluta libero amet in.