Correlation between top degrees and a career in commodities

I am just a freshman so bear with me. I am interested in commodities trading. My aim would be to eventually get a FO role with one of the trading houses (Glencore, Vitol, Mercuria, etc).

I understand that commodities trading is a very hard sector to get into but I am not sure how this is demonstrated in terms of college recruiting.

Having done some research on linkedin (amongst others), I don't get that these shops are filled with students from targets, with amazing resumes and so on. Comparing to areas like PE, BBs, MBB and so on, which are full of people with ivy/equivalent degrees, the commodities houses seem to only have very few such candidates (and are much more diverse in terms of non-targets).

To be clear, I am not suggesting that you are only a worthy candidate if you've gone to that kinda school or anything like that.

I simply want to get why this sector doesn't seem to be popular amongst targets or why the big players don't recruit that heavily from targets.

Comments (55)

Most Helpful
  • Trader in S&T - Comm
Jun 12, 2020 - 9:13pm

I think there' a few reasons. For one, I think it's kind of a well kept secret. I don't think your average banker, accountant, or consultant has any idea how mind-boggling the compensation can be. Secondly, there just aren't that many good seats. Since it's so "real world", there's just no reason to have the headcount for a bunch of entry level people that are generally unproductive. Third, there's a very high degree of personal risk, both in the actual trajectory or likelihood that you ever get a chance at trading, and if you do, that you're going to be any good at it. In reality, if you have a degree from Harvard, you just have insanely higher risk adjusted returns going with a career field that has well beaten paths for advancement. Not to say that you can excel in any career by going through the motions, but you can get to significantly higher comp levels in these other fields if you're "pretty good". In trading, you won't even get to a seat you can take risk in and will spend your career in well compensated but not equivalently lucrative roles to what you likely would have found yourself in on these other paths. Last, since you can generally consider the business proprietary, a firm level image/culture of polished gentility does not have the same impact on profitability and growth as compared to these other fields where it's almost paramount. In summary, where someone went to school has little to offer beyond suggestions at the individual level of intelligence and work ethic, which evidently the people doing the hiring feel they can deduce from areas other than the school.

I do think it's an interesting question and also wonder about the je ne sais quoi that makes traders think juniors have potential, and more than that, if maybe they catch less of this vibe from the stereotypical gunner that would generally gravitate towards finance. I think it's an unspoken risk aversion but this has several obvious holes in it.

Jun 12, 2020 - 10:29pm
CommodsinEurope, what's your opinion? Comment below:

That's an awesome response, very well said especially the point about risk-adjusted income potential....the expectations for someone ~4 years into a trading career vs a banking career for instance are so different...crazy commercial pressure as a trader from day 1

Jun 13, 2020 - 5:21am
Houner, what's your opinion? Comment below:

Thank you for your insightful comments.

I certainly get the secrecy point. I go to a lower Ivy where the student population isn't as passionate about a career in finance as other schools but the ones who are generally have no problem getting recruited by the usual gigs (BB, MBB even some on the buy-side)...and even among the students who are committed to Wall Street it doesn't seem that commodities is a real consideration. I do wonder how the sector is seen in more focused schools such as Wharton or even HYP.

As for the risk-return expectations I understand though I would have thought this is being superseded these days given that some of these shops have structured training programs. Aren't graduate schemes like Glencore's, Noble's or even the oil majors' (BP IST, Shell) crazy competitive? Don't these firms choose the 'top schools' for recruitment?

  • Analyst 1 in S&T - Other
Jun 13, 2020 - 10:06am

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Jun 13, 2020 - 5:38pm
Koo21, what's your opinion? Comment below:

Singapore but also London...I dare say that on this side of the pond, training programmes such as Glencore's or BP's are starting to be genuine alternatives to / competing options for high performing graduates from Oxbridge, LSE, UCL and other top unis.

  • Analyst 1 in S&T - Comm
Jun 13, 2020 - 6:19pm

Anecdotally, I interviewed at a few trade houses (e.g. Cargill, Glencore, Trafigura, etc.) for their grad programs, and will be starting at one next month. Some of the schools represented at the interviews included: UChicago, Dartmouth, Cornell, UCLA, Penn State, Duke, NYU, Columbia, Minnesota. I interned in BB S&T last summer, and the mix of schools was pretty similar. Although it is much harder to get a seat at one of these trade houses since they only accept a few people for full time. One thing I noticed though was a lot of kids interviewing for full time roles had prior experience in S&T or commodity industry experience (I met kids who interned at GS, JPM, MS, and BAML in S&T as well as kids who interned at oil companies and agribusiness firms in their non-trading divisions).

Jun 22, 2020 - 7:21am
Houner, what's your opinion? Comment below:

Thank you. As I understand it, the Glencore scheme is different from the Trafi scheme in that it is actually designed to groom traders at the end of the two years (success depends on the individual of course) whereas looking at Trafi's one, they seem to stress the point that it is not a trading program. At least as far the NY schemes go (although Trafi's seems to be global, Glencore seems to run parallel ones in Singapore and London so I don't know how much travelling is involved).

Jun 18, 2020 - 11:38am
Rotterdam, what's your opinion? Comment below:

I think it shows well how little a degree from one of those universities actually means. Physical commodity trading is a world of results. You don't have client order flow to hide behind that you got because you came from a good school and performed well in corporate finance. You can't rely on your oratory skills to impress people. You are not a polished salesman. All those soft traits that people from top universities tend to pick up on due to their social circles and help you excel in the banking/consulting world don't matter in the world of trading. I have seen guys managing large enough positions to have 30 million dollar PnL swings in a month that can't even tuck their shirt in or comb their hair..

At the end of the day one thing matters and that is your PnL. Some people are good at it and some people aren't and your ability to excel in a structured school environment is a weak indicator at best of how you will be at thinking creatively and coming up with unique ideas on your own. Physical trading rewards the creative risk takers.

Jun 18, 2020 - 3:48pm
traderlife, what's your opinion? Comment below:

People learn how to behave in the way that is necessary to succeed. If your having decent size swings your brains focused on thinking about that position. Small things seem unimportant if the other thing in your life might be moving enough to effect your pay by a few hundred grand by tomorrow morning.

Jun 18, 2020 - 5:24pm
Koo21, what's your opinion? Comment below:

Soft traits matter a lot in commodities! This is ultimately a relationship business and the gift of the gab (or oratory skills whatever you want to call it) will definitely put you at an advantage, particularly as you become more senior.

I agree that you live and die by your PnL but a successful PnL is the result of a a multitude of factors. This is arguably the only industry where you will need to be as comfortable negotiating complex structures with an Eton-schooled, Oxbridge-educated financier, arguing constantly with a GCSE-dropout on the chartering desk and humbly ass-kissing a government official operating a terminal/refinery.

Some of that skillset is taught through good education, others have it naturally, but all need to constantly develop it.

Jun 20, 2020 - 10:09am
Rotterdam, what's your opinion? Comment below:

I would agree with that. My point wasn't to say that those skills don't help. My point was to say that there are people at trade shops that don't have those traits and to me that says a lot.

You don't find those people at all at the big banks in groups like investment banking but you can come across them at trade shops and it's not to say that guy that can't comb his hair doesn't have the gift of gab either. I'm just saying that the fact that some of them exist at all shows that polish is not a prerequisite to employment like it seems to be for an investment banker at a high level.

The further point here, as I am sure you're aware, is that trading truly is a meritocracy based on your knowledge of your market and your ability to put together the dots (sometimes that is through analysis, sometimes through rumors due to someone's gift of gab, usually both) while banking at a high level is more a relationship based business that puts much more value on polish and knowing the right people to form those relationships. As a result, formal education becomes a much more important filter for hiring to figure out who has the potential to be a contributor to the firm's bottom line one day since, let's be honest, nothing about banking is as intellectually demanding as physical trading.

Jun 25, 2020 - 9:18am
monty09, what's your opinion? Comment below:
Rotterdam:
I think it shows well how little a degree from one of those universities actually means. Physical commodity trading is a world of results. You don't have client order flow to hide behind that you got because you came from a good school and performed well in corporate finance. You can't rely on your oratory skills to impress people. You are not a polished salesman. All those soft traits that people from top universities tend to pick up on due to their social circles and help you excel in the banking/consulting world don't matter in the world of trading. I have seen guys managing large enough positions to have 30 million dollar PnL swings in a month that can't even tuck their shirt in or comb their hair..

At the end of the day one thing matters and that is your PnL. Some people are good at it and some people aren't and your ability to excel in a structured school environment is a weak indicator at best of how you will be at thinking creatively and coming up with unique ideas on your own. Physical trading rewards the creative risk takers.

very well written. I agree 100%

Jun 18, 2020 - 12:38pm
GoodBread, what's your opinion? Comment below:

Agree with a lot of the above but will say that anyone who running a desk in commodities is very smart. Doesn't necessarily mean they went to a top target but they were probably good at something before getting hired.

Don't 100% agree that soft factors have zero impact in physical, you still need your counterparties to like you and spend time in person and on the phone in a lot of markets. It's a very unique negotiating skillset. Some people are consummate salesmen but the straight-shooter is at least as effective an approach.

And there are definitely people who never quite got to the top at the biggest shops because they pissed too many people off.

Jun 18, 2020 - 1:15pm
msdixie, what's your opinion? Comment below:

There are multiple ways in.

It is extremely unstructured. In my experience, a lot of the traders at the major trading houses came from majors or other midstream trading arms.

There are some brilliantly educated people, but also random people that came from scheduling/back office/etc. Some "legends" in my particular product have literally come from the most obscure colleges and backgrounds you could imagine.

I'd recommend trying to get a graduate rotation program at a major such as BP or Shell. Or, you could try to network your way into a scheduling or risk job at a supply and trading arm of a physical commodities company.

Array
  • 3
Jun 18, 2020 - 4:18pm
MJR03, what's your opinion? Comment below:

I have been trading physical oil for ~10 yrs and I didn't come for a target school. I started as a scheduler at a large refiner got my MBA and then worked my way into a trading position. I think part of the reason that you don't see students from targets is that not all of the commodities trading houses have developmental programs nor do they focus on summer internships etc. I'm in PE now trading physical oil still so I do see the other side of its in terms of recruiting from targets etc. My view is that physical trading as mentioned on some of the other posts is a grind and yea everyone is smart but the work ethic and willingness to learn in a scheduling or risk role prior to a jr trader or trading role is important. If you want to break into a commodities shop you should try to get an internship since you are still in college and try to roll that into a job offer in scheduling, risk , trading etc when you graduate.

Jun 18, 2020 - 5:17pm
powerforward1, what's your opinion? Comment below:

wait you're in PE trading oil? Like an internal prop desk?

Array
Jun 22, 2020 - 7:16am
Houner, what's your opinion? Comment below:

Thank you all for your help. As an aside, would you say that starting your career with a BB is less effective for long-term prospects in the sector? Not just in terms of doing a summer internship but actually starting out FT for a couple of years after school (on the basis that opening spots at commodities houses are not as available).

I don't mean only the S&T desks or the IB/O&G desks (as some mentioned already) but actually targeting the (few) banks that are still in commodities, such as GS or Citi. I appreciate the risk is the status of these desks as banks may continue exiting, but if this is a stepping stone anyway, would it not be a good foundation for jumping into a different shop after a few years?

Jun 25, 2020 - 9:21am
monty09, what's your opinion? Comment below:
Houner:
Thank you all for your help. As an aside, would you say that starting your career with a BB is less effective for long-term prospects in the sector? Not just in terms of doing a summer internship but actually starting out FT for a couple of years after school (on the basis that opening spots at commodities houses are not as available).

I don't mean only the S&T desks or the IB/O&G desks (as some mentioned already) but actually targeting the (few) banks that are still in commodities, such as GS or Citi. I appreciate the risk is the status of these desks as banks may continue exiting, but if this is a stepping stone anyway, would it not be a good foundation for jumping into a different shop after a few years?

in the phy space.. BP and Shell are your goldman sachs.... finish school and get a job there.. Vitol and Glencore will find you when they are ready... most kids dont want to put in the work for that seat.. they want a safe seat direct out of college.... banking, corp finance etc

Jun 25, 2020 - 10:38am
D.O.U.G., what's your opinion? Comment below:

Hourner --

I'll echo the above commenters and give you a slightly different take. First, commodities is more than physical oil. Second, Commodities is both physical ad financial. Third, I'll give you a little personal backstory to help clarify some questions.

I am an HYP grad (Political Science) with an MBA (top 20), I was in the very first class (all HYP) that one of the BB firms hired to increase their floor/pit knowledge / decorum. Of that original class of six, three thought that it was beneath them and quit and the other three thrived. I spent a three years bouncing around the different commodity pits (ICE wasn't even conceived yet) in NY working as an analyst,

I left and did structured physical commodity products. If you think most of the geeks on the street could handle these, you are incorrect. These are some of the hardest products to work on, because....well...your are dependent on ships captains remaining sober, pipelines not catching on fire, hurricanes blowing down your infrastructure, river flooding, etc. Try dropping THAT into standard or exotic models for equity! We had to create, not only the client deals, but in some cases, the ways to actually risk manage them. Don't get me started on negative commodity prices due to government tax breaks.

My point is this. You will probably never be Andy Hall and there are many more white shoe opportunities in the nice safe world of banking. If you want to get onto oil platforms in the north sea, climb to the top of a wind turbine, stand within 10 feet of a 2000 degree pot line for aluminium or forecast rainfall for the next 30 days, then this business isn't not for you.

Quick aside: I spent most of career in electricity. If you want to play in markets with thousand percent plus spot volatility, come play. Most of the "smartest" players (hedge funds, PE shops, etc.) with PhD staff play in power,

If you want to chew some Copenhagen, shake a man's hand and be willing to travel to places like Williston, Doniphan and the jungles of Zaire, then this could be your life,

By the way, of my 8 closest friends who all went to the HYP school with me, 4 are already retired. What were they? ###Bankers.

Namaste.

D.O.U.G.

  • 3
Jun 25, 2020 - 2:19pm
GoodBread, what's your opinion? Comment below:
D.O.U.G.:
If you want to get onto oil platforms in the north sea, climb to the top of a wind turbine, stand within 10 feet of a 2000 degree pot line for aluminium or forecast rainfall for the next 30 days, then this business is not for you.

Is or isn't?

Dec 29, 2020 - 3:22pm
AlphabetTrader, what's your opinion? Comment below:

D.O.U.G.

Quick aside: I spent most of career in electricity. If you want to play in markets with thousand percent plus spot volatility, come play. Most of the "smartest" players (hedge funds, PE shops, etc.) with PhD staff play in power,

If you want to chew some Copenhagen, shake a man's hand and be willing to travel to places like Williston, Doniphan and the jungles of Zaire, then this could be your life,

Wait, I'm in Power.  How did you end up in the jungles of Zaire?  That sounds fun!

Funniest
Jun 30, 2020 - 10:47am
ASUgrad2017, what's your opinion? Comment below:

ASU >> BP Trading Development Program. So can confirm Ivy degree needed

  • 5
Jul 7, 2020 - 6:57am
Koo21, what's your opinion? Comment below:

Most of these won't have structured graduate programmes or, if they do, they will be quite new/bespoke and so less established.

In more general terms, there is a difference between the three you mentioned. Total is the closest to BP/Shell and for a lot of products may even be better. Eni is like Total but on a smaller scale. Gazprom is not a supermajor. They will do exciting stuff (easily the most adventurous of the three in terms of sheer trading) but their activities are subject to sanctions-risk (meaning you could end up working on an interesting project/trade and then execution gets hit / challenged by sanctions).

  • Analyst 1 in S&T - Equities
Jul 7, 2020 - 7:09am

Thanks for replying and the info, useful stuff Having searched from LinkedIn, it looks like traders at Total and even more at ENI mainly come from quant, Market Risk or trade support (eg risk -> trading analyst/jr trader

I am actually a trading assistant on EQD but got a market risk offer from of the two mentioned above and to be honest im very tempted to accept.. (is for London)

Goal would be ending up in trading crude

  • Analyst 1 in IB-M&A
May 16, 2022 - 5:39pm
Koo21

Most of these won't have structured graduate programmes or, if they do, they will be quite new/bespoke and so less established.

In more general terms, there is a difference between the three you mentioned. Total is the closest to BP/Shell and for a lot of products may even be better. Eni is like Total but on a smaller scale. Gazprom is not a supermajor. They will do exciting stuff (easily the most adventurous of the three in terms of sheer trading) but their activities are subject to sanctions-risk (meaning you could end up working on an interesting project/trade and then execution gets hit / challenged by sanctions).

This aged well

  • Quant in PropTrad
Jul 12, 2020 - 2:40am

I think a big factor is that at top targets like MIT/Harvard most of the students interested in trading have excellent quant/CS skills so prop trading is more attractive than commodities trading. My impression is that starting comp is way higher in prop trading than commodities and so the student culture/on campus recruiting tends towards prop trading and students just never consider commodities while JS/HRT along with some hedge funds are seen as some of the most desirable jobs. I am not familiar with commodities trading but I think the potential upside in prop trading is pretty high too even within 3-5 years of starting out.

  • NA in S&T - Comm
Dec 26, 2020 - 4:45pm

The advice given is largely accurate, but here's my perspective.

The industry is a well kept secret, yes. However, those interested in trading schemes will know of commodity trading, of Vitol, of BP, of Glencore etc. Yet, colleges are rife with aspiring M&A bankers, not aspiring LPG traders. Why?

I, as others have noted, place this to be due to 'career risk'. Why would you take a back office job at a Glencore/Trafigura etc. to only have a shot at trading 4+ years down the line (or not at all), when you could trade at a bank 6-12m in? 

Most of my colleagues didn't go to the best colleges in their respective countries. I would even argue some to be far from conventionally intelligent - these are guys making good money by riding existing contracts.

So to answer your question, this industry has two parts. Those who fell into it, and those who want it. Banking doesn't generally have as many 'falling into' it, given the calibre required is generally higher and more competitive due to reasons above.

Here is the advantage for those fairly intelligent, from targets. You can outperform. Just remember, physical and financial in commods is still relationship driven.

  • NA in S&T - Comm
Dec 27, 2020 - 6:24am

I wrote this with trading houses in mind. Commodities at banks I'm sure is fairly interesting, but since the cutback on presence it is trading houses that give true commod exposure.

Yes, on voice-brokered products, this is relationship driven. Huge amounts of ex-IPE traders doing business with traders turned brokers from 'back in the day'. LME is a similar story. Not buying fuel oil swaps on ICE, sure, but on AG or MENA biofuels, you're going to be using brokers.

Might be different at supermajors or banks, but this is Vitol/Mercuria/Gunvor.

  • Analyst 1 in S&T - Comm
Dec 26, 2020 - 7:29pm

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Dec 29, 2020 - 3:38pm
AlphabetTrader, what's your opinion? Comment below:

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