Is this a physical commodity shop or was I mislead by management?
I am currently sitting on a lumber 'desk' as a physical trader and I am starting to think that the job is not the right fit for me as it is not what I originally believed it to be. When I applied to the company they insinuated heavily that they speculated in the futures market which is the reason I took the job. However, after a couple of months of being in my current position, I have begun to realize that the shop I am at is not quite like the others (eg. Trafigura, Glencore, etc.). Needless to say, I am very disappointed as I turned down an offer from a BB to pursue this job.
The strategy at my shop is supposedly an arbitrage strategy but we only source lumber from Canada, Ireland, and Russia which is all sold in the US. From my understanding, many of the physical shops buy and sell into numerous countries to exploit greater arbitrage opportunities. I have also read that those shops run models and speculate in the futures and forward markets, however, my firm does not. Does this mean that the firm I am at is just executing a different strategy or is it not a trading house at all?
None of the traders have a series 3 or any type of series certification. We also do not run any sort of models to predict where the futures price of our commodity is heading. The closest that we come to operating in the futures markets are verbal agreements with 'sell-side' clients that lock in a price at a specified time in the future.
I am trying to figure out if I am in the right place as I am under the impression that my role is similar to a physical trader at a firm like Glencore or am I just lumber salesmen that also buys the product that just so happens to fluctuate in the price? My main question is, what is the process that other physical houses/ market makers (eg. Glencore, Vitol,etc.) use when making trade decisions? Also, what are my exit opportunities in the event that this is not the job for me? I would like to transition into a paper trading role but I was told today by a network contact that my job is the equivalent of being in a lumber yard. Is this true? I am worried that I have screwed myself over. Out of all the other traders that have come through the company only one has made it to a paper trading role at an IB and the rest are stuck in S**tty sales jobs.
I know I'm not supposed to release details about the company but the name of the parent company is Forest City Trading Group.
You just pretty much described physical trading. Being a physical trader doesn’t mean you speculate on the futures market. Physical traders make their money by altering the location, quality, or time value (Storage) of a product. Some shops allow their physical traders to speculate in the futures market but it isn’t their main job. Futures at physical shops are mainly used for hedging. If you really want to be a physical trader you’re in the right place. It seems like you really just want to trade paper though. If that’s the case, you might want to look for a new job
What you describe isn't all that different from what the big physical guys do with a lot of products. If you really wanted to do paper, why not have taken the BB job?
I was more attracted to the S&T side of the business, and the job at the BB was in equity research... I also got interviews @MM banks in S&T but unfortunately was unable to convert into a position.
you are comparing lumber to oil... obv same concept but day to day is much different
Trafigura trades more than just oil....
obv
Yup, you just sell wood.
You can always go trade paper...
As frustrating as it is that many people including myself have tried to be helpful and you have completely ignored it, I'm happy to try to help again.
I think we should start with some of your assumptions. Since you appear to be obsessed with Glencore and Traf, what do you feel you would be doing there? Please actually try to answer this.
Until you answer, right now it sounds like you think you would "run models" (which as far as I can tell, would better be phrased as 'gaze into a proprietary crystal ball that will tell me how to make 7 figure bonuses'). If these models exist and you feel these models are what differentiate your firm from the firms you feel entitled to work for - do you think you can build or improve their models for them?
I apologize (to everyone) for the constant spamming of these boards. I'll definitely take that one on my shoulders.... I am not looking for my company to 'gaze into a proprietary crystal ball that will tell me how to make 7 figure bonuses'. I'm not an idiot that thinks I'm going to get rich quick overnight but I was simply looking to compare my firm does with other houses with reputable strategies. I know comparing oil & energy shops to a lumber trading firm is like comparing apples to oranges but I just wanted to know what their methods were to see management method's are legit. My shop does very little to analyze the market besides talking to clients about market information.
Please explain the lumber trading process from deal inception through to end delivery.
Dude, you are actually describing a fair amount of spec with the first process. You find an asset that you believe to be undervalued and you hold off on selling the asset. Just like that you have taken a long position. Buying and selling +/- alpha against a PRA price is standard practice in physical trading and I can almost guarantee you that is what glencore and trafig are doing. You still have to understand the market the same way you have to in paper trading but you have an additional layer of complexity/margin because you are actually procuring and delivering a physical good. The whole price coming out weekly is typical of less liquid products, and if you are so inclined I would take past price reports and compile graphs showing how different grades and locations interract with eachother over time, and from there you can "model" stuff. Although I have never been in lumber, I would be elated to have a risk taking role straight out of school.
Yeah dude, you can make plenty of money here. If you go to Glen or Traf you're not going to go "commercial" for a good long time.
I understand where you're coming from tbh, BUT: Glencore and Traf don't know where commodity prices are going. They don't have sophisticated price prediction models. The crux of the business is securing purchase contracts at a discount and sales at a premium, then managing the logistics and credit risk in between. Glencore's mining business is basically about securing low-cost and steady supply. Yes there are subtleties beyond this - storage, blending, arbitrage but this is mostly it. It's not Trading Places, or even as fast-paced as a bank's trading floor. It's credit, shipping and managing hedges especially for a junior employee.
You're right in thinking that there are more interesting markets than lumber though. Yes there's a futures contract but it's pretty limited compared to energy for example. Things get much more exciting when you have flat price, calendar spreads, cracks, product spreads and options. I get that this is what you envisaged. Basically you need to get into energy, metals or maybe grains/oilseeds to have this kind of developed futures complex. In other commodities (lumber, softs, fertilisers, freight, minor metals etc) the business is much more about capturing a commercial margin, so long-term deals, financing and logistics are the important jobs. Paper trading and hedging will always be a minor part of these businesses.
Great take. And for what it's worth, booking long-term deals with fat margins is very, very fun. Book a few bangers for your lumber shop before you decide to give up.
What Caporegime said pretty much, you might want to get into a more "exciting/fun" commodity for what you want to do. Lumber would be a good place to get started for physical trading as there are not a lot of components to it before getting into Energy etc.
I much prefer the expression laying wood **vs. laying pipe**. You give that up if you come to o&g
Sounds like you're mucking around a lot, and playing with wood a lot
Yep, you're in physical trading all right
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