IBD vs Commodity Trading - Career Decisions

Hey guys, really need your help about the career goal choice: IBD-PE or commodity trading.

Recently just got admitted by ESSEC in France(Grande école)


IBD: Higher comps even in junior level, more structured pathway. Also more competitive in the recruitment, shitty hours. IBD is boring and sweaty but Buyout PE/SSG fund seems interesting.

Commodity Trading: For me it's hard to differentiate the physical and derivatives trading career situations.

In physical trading, comps are much lower at junior level. And it takes 5+(IDK?) years to actually become a trader. That is too long for me with low pay. So I was thinking starting at S&T then make the transition to trading houses?

Paper trading/derivatives trading sounds cool but I know almost nothing about it. Maybe I can try that but idk if it's just another version of quant trading, then that is not what I want.


I think the most crucial is that IDK if I'm one of those trading talents, and the avg base conditions will be worse in trading compared with PE


It's true that these 2 careers require totally different people, but I feel difficult to find myself. Thanks and have a nice day!

 

Hey there! It sounds like you're at a crossroads, trying to decide between IBD and commodity trading. Both are great paths, but they do have their differences.

IBD does indeed offer higher compensation at the junior level and a more structured career path. It's competitive and the hours can be long, but it can also lead to interesting opportunities in areas like Buyout PE/SSG funds. It's a bit like running a marathon - it's a long, steady race that requires stamina and persistence.

On the other hand, commodity trading, whether physical or derivatives, is more like a sprint. It's fast-paced and requires quick decision-making. The compensation at the junior level might be lower and it might take a few years to become a trader, but the experience you gain can be invaluable. You'll learn to read the market and understand risk, skills that can be transferred to many areas in finance.

Starting in S&T and then transitioning to a trading house could be a good strategy. It would give you a solid foundation and allow you to gain experience before making the jump to trading.

As for derivatives trading, it's not quite the same as quant trading. While both involve complex financial instruments, quant trading is more focused on mathematical and statistical models. Derivatives trading, on the other hand, involves buying and selling financial contracts that derive their value from underlying assets.

At the end of the day, the best path depends on your personal interests, career goals, and risk tolerance. It's a personal decision, but I hope this gives you a bit more insight to help guide your decision. Good luck!

Sources: https://www.wallstreetoasis.com/forum/investment-banking/should-i-pursue-st-or-ib?customgpt=1, Physical Trading: Best commodities to be in?, Why choose Sales and Trading over Investment Banking?, Physical Commodity Trading career: If you started over again., IBD is the top career now (post normal tax on carry)?

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

You said it yourself: it takes completely different people for these two. Without knowing more about yourself and some actual experience, which is how I personally used to decide what path to take, more discussion seems a bit meaningless. 

That said, what do you care more about? Commodity trading comes with higher risk and upside, it's interesting but has its own shitty part at the beginning of your career. Why are you deciding between these two? It kinda...doesn't make sense.?

 

Thanks for your reply! I do feel confused about myself and what interests me most.

I do believe that Commodity trading is interesting, but 10 years of lower comps relative to banking? idk. The lower comps period is not like just 3 years. Yeah as a senior trader, there is no limits in pay. But who know if I am that kind of talents?

I hate IBD though, those opportunities behind IBD like Buyout PE and Special Sits Group Fund seem interesting, too. That's why I am stuck in front of 2 totally different pathway: IBD-PE/SSG vs Middle office(at least 5 years accordingly)-trading.

 
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I want to preface this by saying any job has its tough part when starting out. The best way to test the water is literally try to do it. ESSEC is a great school you should have no problems getting some internships to know what you really enjoy/can tolerate doing. I thought I can at least tolerate banking and did an internship when I was 19. Nope turns out I hate it to guts, totally meaningless for me. Then try out trading—ok that’s better. Your experience is better than anything you can find online.

“10 years of lower comp” seems a bit overblown. Comp varies a lot in this field and your comp still grows even without making it as a trader.

So smt about IB is that no matter what kinds of shops you go to, it will more or less sucks the same (Sure there’re still sweatier shops and vice versa). The work you do as a junior is similar too. But the same can’t be say about commodity trading. If you go to London or a major commodities hub like Houston for a TDP from said BP, then you will be guaranteed a chance at trader placement in 3 years. And sometime if you go to the right school or know the right person things you might just start as some traders’ successor. I think ppl like Marcellus Wallace started as an analyst. I myself am also lucky enough to skip some ops stint and started in front office too. So 10 years to me is the worst case scenario not the norm. It should be fairly easy to tell whether you want to do this or not. You are worrying about having the talent to do it. Talent might be the wrong words here but here’s what I think:

If you can do this job well, it might not take you even half of a decade before your first shot at trading. If you can’t do this job well, then even if you’re given a seat after 10 years you wouldn’t be happy either.

 

Industry-wide margins for commodity traders are likely to exceed $100 billion per year over the long term as a shift to a lower-carbon world creates more complex energy supply chains, according to consultancy Oliver Wyman Inc.

And per McKinsey, the industry has enjoyed an upward trend over the past five years. While all industries go through multiyear cycles of peaks and troughs, the industry’s prospects look excellent for the years ahead.

"Indeed, commodity trading is on the cusp of the next normal. The energy transition now under way is an economic and physical transformation that cuts across and integrates the various global food, energy, and materials systems. From a commodity trading standpoint, this transformation will increase structural volatility, disrupt trade flows to open new arbitrages, redefine what it means to be a commodity, and fundamentally alter commercial relationships. All these developments will create unique opportunities and challenges for new and incumbent players alike."

 

Commodity trading is long vol (and IB/PE short vol) so it has had a couple of blow out years recently but people are quick to forget how much the pre-2020 years/decade sucked for the field. Agree with the secular trends you mentioned but that alone won't sustain the level of comps of these last few years.

 

Not a debate. IB is terrible. Commodity trading (energy if you can break into it) is way better. Better WLB, better comp ceiling, and less reliance on ZIRP (which is what IB/VC/PE is mostly based on) 

Most friends went into IB and are pure miserable. Only thing going for them is free meals at the office after 7pm - that is the reason they have bellies though...

 

Agreed - one risk with energy trading is you won't be guaranteed a trader seat. Meanwhile with massive attrition in IB/PE/VC there is always room to be a VP level or whatever.  Although I'd rather be a lifer fundies analyst at a energy trading shop than a VP at a investment bank. If the traders like your work and you're invaluable as an analyst, they'll pay you. 

 

Thanks dude, it bothers me more lol. I am actually not sure about my talents. This volatile and variable comps which could be 0 in bonus make the average comps much lower than PE. And if I'm just a normal guy, I will make much less money.

 

Two very different careers with very different skillsets. Ironically the higher you get in both (especially the banking to pe route) the careers mesh at the top. As the job becomes finding distressed assets or distressed businesses to close valuations. 

Many other good comments here main thing I will say is banking trains you much better in soft skills, most desk heads lack the ability to make a presentation or even write formal emails. Many larger platforms in fact give desk heads a career coach or exec programs when they get to that level. So while WLB in commodity trading is one of the best out there to do the tasks assigned many people for the first 5-7 years put in much more time than just on the clock to push ahead. 
 

Due to recent volatility and paydays many people seem to glamorize the field these days. I know plenty of smart senoir bankers and PE people who transitioned to renewables instantly are doing great, again a great skillset is taught in banking.

 

Thank you Marcellus for your inspiration! I think 2 most crucial barriers for me to choose commodity trading is 5-7years lower comps in middle office plus lower base salary if I’m not a trading talents in senior years. That really bothers me in consideration of PE.

I also want ask another questions about their transition, is it like IB/PE to renewable infra/company investments in primary market? Or just to trading in secondary market?

Thanks for the help again!

 

Pretty common for new grads at most firms to become a trader within 2 years nowadays especially if you have an internship on your resume. The battle for talent makes it very hard to make someone getting into a top new-grad program to wait 4 years. That said I work in energy trading.

O&G banking, natural resource type groups to renewables/carbon-capture/hydrogen/battery-storage.

 

Alumni from ESSEC who work in a trading house now. This is a really fast-paced field. You have to keep highly focused on your tasks every working day and react quickly to any potential issues, cause there are too many deals need to follow up. And also, this business is a highly competitive market. It’s all about three words:relationship, relationship and relationship. You’re supposed to figure out whether you are an outgoing and sociable guy.

 

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