How to break into commodities??
Hi monkeys, I have been trying to research how to break into commodity trading. From the research I have done I believe it would be better for me to major in petroleum engineering, math, or some type of STEM degree instead of a finance degree. If I was to go for a STEM degree should I minor in finance or Econ so I can show I have some understanding of finance? I have a strong interest in the markets and have been trying to figure how I can set myself up to get me the position to succeed in trading. I believe from the research I have done that a STEM degree is the best way to go but not certain so I wanted to get your inputs.
Thanks
Major in whatever you want to. You'd be fine majoring in finance, econ, or a stem degree. The perfect combo according to John Arnold is statistics and econ but I would say to study what interests you the most.
Apply to internships at supermajors, banks, commercial wholesalers, refiners, midstream companies, and trade house graduate programs.
I have always heard stats is a great major but from my understand it’s really easy. I took stats 1 and thought it was the easiest math ever and I’ve never been great at math. Do you think linear algebra and some calculus could help or just stats for math?
Ooh boy are you in for a treat. Elementary stats is easy but upper division stats is incredibly difficult. Stats and pure math are about the same in difficulty at my school, but stats allows you to get more comfortable with large data sets. Stats has one of the lowest average gpa's at my school.
Sorry, I just read this and had to rib you a little. That’s like asking if chemistry is hard because you were able to make soda explode by dropping in mentos. Stats 101 exists to get unquantitative majors through their math requirements without destroying their GPAs. It’s unrecognizable from what you would be preoccupied with as a practitioner, especially for something demanding like finance or statistical mechanics.
It’s a slow day at the office.
Just stats. Unless you want to be a quant, I don't see how linear algebra or calculus would really be helpful when it comes to trading commodities especially physical. If anything I would think that statistics would be 10X more applicable.
WRONG! You will have a very, very hard time is your statistics probability courses without a solid footing in both linear algebra and calculus. The probability courses that stats majors have to go through are some of the toughest math courses I've sat through.
So what do you think is the best major to go for?
Major in Finance, minor in computer science (learn some python, macros)
Cs? I wouldn’t believe I would be doing to much coding. That would be more quant prop shop type wouldn’t it?
Thank me later for starting early on learning this. quant shop or not
Definitely will end up doing at least some coding pretty much anywhere you go these days. As the other guy said, quant prop or not, if you're gonna be useful you need to generate results. You don't need to be able to write beautiful code, or even give a shit about memory allocation. But being able to get a simple script going to answer a quick question before market close is always pretty helpful.
I wouldn’t want to choose a major just based on getting into commodities. Nothing will really be relevant in such a huge way that it would be worth the extra effort if the subject is not a good fit. That being said, coding is always good. If there’s 2 people who are both interested, and one person can be an instant value add by improving a bunch of processes while one person cannot- you can imagine how that decision would go down. Petroleum engineering is not useful since it is more upstream focused and understanding the technicals of upstream has actually very little benefit to forecast oil production (which is more dependent on investor appetite, company spending, labor, and geopolitics). Chemical engineering is somewhat more useful for certain desks which need to know how refineries optimize, but it’s certainly not required. Options theory is probably the most useful finance topic, and marginal economics is the most useful economics topic. Probability and statistics useful for data heavy roles. Have a working knowledge of those as well as keeping up with industry news should help you do well in interviews.
Thank you for the in depth response. I’ve heard higher stats has some coding. Do you think stats minor would give me enough exposure in coding?
Almost certainly. When I took them a decade ago, they involved R programming. Nowadays, a lot of universities have tracks now tailored to data science, so it should be even more application oriented now.
great advice
Do not do engineering unless you enjoy it. CS/Math/Stats/Econ and even Finance (though your gpa best be stellar then).
In 5 years time you will need coding to sort through all the data, everyone will need coding.
No matter what you should take econ electives, I mean if you do not enjoy Econ101/102....why even consider this career.
Take this with a grain of salt because I'm just an intern, but I've been told that my combo of Econ, CS and Math works well for commodities (primarily looking at crude/natty). Something with some macro is good, and CS will never hurt. Yes it's very challenging and a big time commitment, but everyone that I've interviewed with or talked to has stressed that CS will only become more and more important. Math just to show that you're quantitative. Finance could be useful as some places want you to come in knowing technicals, but the biggest (and arguably best - eg. supermajors) shops that I've interviewed with are focused on behaviourals with some brain teasers (logic and quantitative).
Math, it is not so much you are quantitative its more the #1 skill we interview for is your "critical thinking process". You have the experience to breakdown problems and connect high-level ideas or lower-level data. Mathematics builds that framework better than anything else.
Finance can build that framework too, cause as business/econ grad you have experience working in teams, presenting, understand how different parts of a business impact the bottom-line. This helps very much when you are socializing and looking at ways that are not just "zero-sum", so be it a customer, pipeline rep, a data vendor.
another solid bit of advice here
I would say stats/econ major with a computer science/data science minor would be the best. When I am going through applications that background tends to stand out since. I don't think learning how to build a dcf model in a finance program is applicable in any way to trading physical commodities. With that background you would be a great candidate for any company hiring interns and that is where you can show your interest in trading. Like some others said, chemical engineering could also be useful for some desks but if you're not actually interested in the course work then that is going to be brutal to get through.
What sort of commodity trading do you want to do? Do you want to trade physical or paper? What sector is interesting to you (Agriculture, energy, metals, etc?)
I get the basics but not the full difference each trader encounters on a day to day
I am a physical metals trader and if you're good with simple math, you won't need much more than that in my industry. The most important traits IMO are information consolidation, creativity and the ability to see the whole picture. Oh and soft skills/sales for sure.
I studied a BBA with a focus on Finance and have a MS in Communications. I have not used any complex mathematics in the 5 years I've traded metals or the 4 years that I trader polymers.
These are the 'topics' I apply on a day to day basis:
1) Simple math. Calculating spreads, understanding how prices convert from lbs to tons and vice versa. Understanding how to convert prices and formulas from one market to another. Calculating how much weight can be loaded on a vessel.
2) Geopolitical common knowledge. This is mainly acquired on a day to day basis but there are some base knowledges that basic geography and history can provide. Mainly policies, where the market is headed, the regular flow of imports and exports of my commodities. Who is a natural buyer and who is a natural seller, and why.
3) Sales. This is a big one. I call, I negotiate, I build friendships. Daily or at least weekly, I call all the accounts I handle. See whats new with their business, what they are mainly manufacturing and why. What they need. How can I add value.
4) Information consolidation and logical/critical thinking. I connect the dots and generate simple reports comparing pricing both from sources and destinations. Find arbitrages. Find cheap places to convert/transform the commodity if there is transformational arbitrage. This is the big picture that we have to be able to see, and comes with experience.
5) Presentation/pitching. I do a lot of biz development. I manage that department in several different areas. I study and find new business lines to develop, then pitch them to the MDs of my company.
I may be missing something, but thats most of my work. Connecting dots and finding opportunities. Understanding what is happening and profiting from it, while adding value to my customers.
You mostly learn that by doing it.
To break into commodities the easiest way I would say would be through Scheduling. Its basic ops. You learn a lot. Its a shitty role with no life depending on the firm. But ultimately you only understand your supply chain when you get knee deep into it. Now you must make sure you do not get stuck in Ops trap where you are unable to move out. For this, really you need to degree tbh. As long as you can do basic math to see the most optimal way to schedule your products you're good. As long as you're interested and motivated and enthusiastic you should generally pass an interview.
Next role would be Risk at a commodity place. You learn the paper side of the business. You understand the hedging strategies being employed by your desk. You learn how to read the forward curves, PnL attribution as well as hidden exposures due to one swap against another. This is super important as well. Finance, esp Market Finance, would be super useful here since learning about forwards, futures, options and swaps would give you the basic knowledge to get through an interview.
Lastly there is Trading Analytics. You do the Analytics for the desk. I do not have much experience here so cannot say more on your day to day. Market Finance + Coding would be very useful since you need to analyse markets and in today's world knowing python will get you a long way.
Given you are interested in commodities I assume you are more interested in the physical side of things as compared to the paper. Build network and relationships are super important here. You're constantly negotiating on price or for market information. Anything that can give you an edge. No study can help you with this.
Overall having a finance background helps if you're interested in learning the paper trading side of the business. You can pick it up while working as well but my general experience has been people who have that background pick it up more quickly.
You will only be a trader at a physical shop after a while because it takes time to know your products, your trade flows as well as recognize opportunities that you can take advantage of.
Some more experienced traders/quants can correct me if they wish but I just want to add my $0.02. I'm currently a masters student in CS and a lot of trading shops are moving over to automating as much as they can and are looking for people with STEM backgrounds. The go to languages for finance are C++/Python. The technical CS/Math is not easy at all, but then again, neither is trading. Overall though, something that will definitely make you stand out, especially since I have experience applying for crypto/DeFi shops as a dev, is that the people hiring you want to see that you have skin in the game. They don't just want some chump saying they're into this without actually doing any trading. Crypto shops that ask me if I have skin in the game I just show them my -50% losses and they cry and laugh along with me. Learn to build a basic trading bot in python, watch a YouTube tutorial and then read the python docs and improve and iterate on it. Make it your little baby project. At the end of the day, trading shops care about one thing and one thing only, your P&L. Can you produce profit? If so, they'll take you. Trading is the one career in this world where I truly believe is a meritocracy, if you're good they'll take you. If you want to work in commodities, start trading commodities. Pick a commodity and learn the whole supply chain, market, historical trends, price movers, and read primers on them. Then get to work and start making bets. You want to be a trader? Make yourself wealthy/successful first, then other traders will pick up on that and see value in that.
Personally I don't care for working in trading as I find finance super boring when I'm trading with someone else's money and making money for someone else, instead of gambling with my own money like a true degenerate.
I have a bachelors in petroleum engineering and I don't recommend the major. Nowadays I'm halfway through a master's in electrical and computer engineering at a good program and trading firms recruit us for quant, software, and FPGA, but I haven't seen anyone go commodities specifically. Maybe that is a useful perspective if you're considering engineering.
from my limited experience, math + stats + programming seems to be a good combination in general, across all industries.
Speaking as someone that studied a STEM subject and ended up in commodity trading, only do it if you enjoy it. If your research is from this site I hate to break it to ya, folks here have some weird hard on for quantitative heavy subjects because a few prop shops hire those folks. Barring nat gas and power, commodity trading is largely a difficult data world where there are dubious benefits of being a guy that is actually a hardcore math geek. Fact of the matter is that those mathy folks that end up in roles that need math are not people that said "I want to do trading, how do I max the chances of me getting there" and decided to take a really difficult subject as a result, rather it is folks that studied STEM and fell into trading or the other side of the situation of folks that enjoy markets and HAPPEN to have such an academic background. As to the other folks telling you to study coding, unless you fall in love with it, take one class that covers basics ie an intro to conditionals, data structures, etc. that'll take you to where you need to go by knowing what questions to ask since everything is googleable. Final point, I've run the gamut on people I've worked with between work and internships from a rhodes scholar to a PhD in Electrical engineering to regular folks that studied Math to Finance to Journalism and even a dropout, trading and commodities in particular are really beautiful that way with such diversity of backgrounds. Best of luck in your choice of major and finding work in whatever it is you want to do commodity trading or otherwise. Now go forth and enjoy college whether it's through academics or out of class settings.
Great piece of advice
Trading is applied economics. You should major in Agriculture Economics and minor in finance. While in school really try to understand and focus on cash basis trading and be able to demonstrate that on your resume and in interviews.
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I know a guy who might be able to help anyone trying to get a job in trading, he's a retired oil trader himself (and an incredibly successful one) who enjoys mentoring young talent. His name is Kieran McKenna - he ran global oil trading at JP Morgan and built his own Hedge Fund (Mastic Commodities Fund - eventually sold to Glencore).
He's based in the UK and has a place in Corfu,Greece where he runs off site courses - though he offers virtual lessons too.
His courses are not cheap but he does regularly offer free places to graduates or anyone with ability but without the means to self-fund.
Search Mastic Group / Mastic Trader Programme and you should find him
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