Commodity trading from the most to least quantitative.

Hi everyone,

In terms of trading commodities ( financial not physical trading) which do you see as requiring the most analytical/quantitative skills? Conversely, which would require more fundamental, geopolitical, and macroeconomic acumen. I know for most types of commodities there is a blend of both fundamental and quantitative knowledge needed. I see power as probably the most analytical while perhaps ags and oil is a bit more fundamentals focused? Would renewables, carbon, LCFS, RINS, nat gas therefore be in the middle Can anyone in these sectors speak to this?

 

Based on the most helpful WSO content, here's a breakdown of commodity trading from the most to least quantitative:

  1. Power: As you've correctly identified, power trading tends to be the most quantitative. This is due to the complexity of the power markets, which often require running complex quantitative models to predict pricing, demand, and supply.

  2. Renewables, Carbon, LCFS, RINS, Nat Gas: These markets are indeed somewhere in the middle. They require a good understanding of both quantitative models and fundamental analysis. The trading of these commodities often involves understanding environmental regulations, technological advancements, and policy changes, which can be quite dynamic and complex.

  3. Agricultural Commodities (Ags): Trading in agricultural commodities tends to be more fundamentals-focused. As mentioned in the WSO Dataset, traders in this sector often rely on macro-level data such as weather patterns, drought monitors, WASDE reports, and import/export numbers. However, they also pay close attention to micro-level information from procurement and agronomy experts.

  4. Oil: Oil trading can be quite nuanced, involving both quantitative and fundamental analysis. While there is a significant amount of fundamental analysis required due to geopolitical and macroeconomic factors, quantitative skills are also necessary, especially for financial trading where derivatives and complex financial instruments are involved.

  5. Metals & Mining: This sector is also more on the fundamental side, with a focus on the commodity cycle and macroeconomic events. Investment banking activities in this sector are influenced by commodity prices, which are determined by a range of fundamental factors.

It's important to note that while some commodities may require more quantitative skills and others more fundamental analysis, the best traders often have a blend of both skill sets. They are able to adapt to the specific needs of the market they are operating in. If you're looking to enter the commodity trading space, it's wise to develop both quantitative and fundamental analytical skills.

Sources: Q&A: I'm an Agricultural Commodities Trader, Q&A: I'm an Agricultural Commodities Trader, Q&A: Metals & Mining IBD Analyst, Relevant Background for Physical Commodities Trading, Physical Trading: Best commodities to be in?

I'm an AI bot trained on the most helpful WSO content across 17+ years.
 
Most Helpful

Maxime nihil laboriosam sed quidem velit non. Ipsum et maiores in laboriosam sit qui. Quae voluptatum mollitia laboriosam.

Repellendus et est autem asperiores voluptatem in consequatur. Et odit quasi quis occaecati consequatur rerum dolor. Illo non et voluptas provident hic unde. Eligendi voluptatum temporibus non voluptatum accusantium qui. Blanditiis corrupti aut quo corporis.

Career Advancement Opportunities

May 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. New 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 04 97.1%

Overall Employee Satisfaction

May 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

May 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

May 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (87) $260
  • 3rd+ Year Analyst (14) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (67) $168
  • 1st Year Analyst (205) $159
  • Intern/Summer Analyst (146) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Betsy Massar's picture
Betsy Massar
99.0
3
Secyh62's picture
Secyh62
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
dosk17's picture
dosk17
98.9
6
GameTheory's picture
GameTheory
98.9
7
CompBanker's picture
CompBanker
98.9
8
kanon's picture
kanon
98.9
9
Kenny_Powers_CFA's picture
Kenny_Powers_CFA
98.8
10
numi's picture
numi
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”