Junior Commodity Trader Salaries
Can anyone provide data points on salaries for junior physical commodity traders who are just starting out in trading (not a support function)? I'm particularly interested in hearing numbers for junior oil traders but info for other commodities is welcome.
Do numbers vary much between the big name traders and smaller players at that level?
If you've had prior commercial experience e.g. biz dev or worked on structured commodity trade finance deals for instance, rather than just having an ops, risk, treasury etc. background, would that make a difference to starting comp as junior trader?
I saw @CoffeeTrader" mention $85-120k with 75-120% bonus in another thread for junior coffee traders. Anyone else have numbers for junior guys trading physical? US or Swiss figures would be great.
Depends on where you start. Support jobs are basically mandatory in coffee, as there is a tremendous amount of info to learn about coffee specs and contract forms, as well as complicated logistics / import structures and hedging strategies. A guy with zero experience who starts as a trade clerk / futures book entry specialist or logistics clerk is looking at 50-75k a year with your bonus. Note my original posts may have been unclear, "with bonus / incl bonus" means your annual bonus gets you to the salary listed.
A true jr trader should make 75-95 base with 10-20% of your book value after exdocking (importing cost) as a bonus. That can be a little or a lot. The average is probably 100-140 range.
As a full fledge trader (a step up from jr trader) you should make 100 base as a min, plus perks like 1st class travel and a company car (or comparable salary) plus fully covered benefits (of comparable salary) plus 20-30 of your book. Average 150-220 range.
A more experience trader can make more as his book increases in value or if he has a name. Rock star guys / guys with specific skills or relationships make more / have Better perks.
A true senior coffee trader should make 150-200 base at a min, 20% of book, profit sharing / equity deals, car, Etc. 275-500+
After that is general manager / partner / regional manager / c level, Etc. These guys make 250-350 base, 100-300% of their salary in bonus / profit sharing, and stock options, equity, cars, houses (at origin) staff, bullet proofing of cars, guards, etc etc
The owners of mid range to high end shops make millions. There are a few famous guys who worked out sweetheart deals in the NYC area to represent big companies or who totally own mid range trade houses who are truly wealthy.. Big beach houses, 2-3 mill a year in earnings, etc. Some who sold are worth 100 mill + to even more
I will add it's Very very easy to loose it all in one bad year or If there is a frost in Brazil. Amajaro recently tried to get into the coffee / cocoa physical biz and lost 150 mill in a few years. Took down dozens of very promising young guys careers.
Goldman also bought J Arryn who was "the" player in the 70s / 80s. Made a ton of money for a while, but after Goldman realized they can make much more money off easier and less easy businesses they closed down the physical shop
With all this said, if you play it conservative, only book safe trades and be happy with a modest profit you can grow a huge business if you have the right relationships at origin and in the roaster community. The specialty guys like royal really are showing how this is possible, especially in the specialty micro roaster market. You sell by the bag (tiny) instead of the ocean container (275-320 bags). Your margins are huge and relatively safe as long as you pay attention to your customers receivables credit line. If you grind it out in that side of the business, and form a few hundred relationships (instead of 5-10 in the commercial side of biz) you can do quite well from scratch. The real growth is in specialty, it's fun / better coffee too but it's a slog
Thanks for all those details. When you say x% of "your book", are you talking about x% of pnl? 20% of pnl sounds rather high, particularly for a junior trader. I thought traders made 10-15% of pnl as bonus generally.
Can one bad year really ruin your career that badly? I thought even successful traders lose money at some point and generally manage to either stay at their firm or find a new trading gig elsewhere eventually if they get fired.
20% of your profit after exdocking which is your import cost is the normal commission in coffee trading. Your not going to generate A lot as a jr trader. Folger is not going to step in and buy a 50 million dollar spread day 1! Your supposed to generate new business, and doing so you are compensated handsomely. It usually works out to 35-50% of your base salary for a true jr trader who is only given flagging small accounts and new biz leads. By year three it should be 50-150% of your base.
I know that some trade houses do 100k of bonus for every 700k of profit after exdocking.
To get a better idea on exdocking an average container of let's say Colombian coffee is 275 bags x 70kg x 2.2046 which works out to 42,328.32 lb. You find a seller in Colombia for Colombian excelso so grade arabica coffee at +5 over sep ice futures. You buy 10 containers and sell to Folgers for swo delivery Instore a warehouse in New Orleans at Z+15 (dec plus 15 cents.) you immediately fix both sides at 100 cents flat by selling and buying 10 futures contracts (this locks in your hedge, it's a super basic example.) so now you need to get your physical coffee from Colombia to New Orleans. You find a ship rate, a customs broker, a trucker, warehouse charge rates, all import fees (hmf and mpf) is 6 cents per lb. you borrow the cash from BBH at 4% or whatever which costs 50 pts or so. You pay 4.44 mill or whatever 105 x 42328.32 x 10 is and you import the coffee into Nola. Folgers pulls samples and approves, and pays you 115 x 42328.32 x 10. You subtract the 6.5 cents of exdocking out and you make 4.5 cent profit. As a reader you're bonus comes from this number. This is the simplest possible example, hedging and speculating gets crazy but this should give you an idea of what I mean.
Sorry for not listing specifics I'm driving in heavy traffic
That's already quite detailed! If these margins are in the right ballpark for coffee, it sounds like they can be quite decent compared to oil. On the other hand, if this is the average deal size, I hope the number of deals is much higher than in oil.
Can you comment on junior traders' careers being ruined by a bad year? Is it really over if you have one bad year?
That's an average contract size, companies like folgers buy thousands of contracts a year, and out several years at a time. My company does about 2-3 million bags a year out of our office, and 8-12 million as a group overall. My book is about 300k bags but at higher margins. Bag volumes aren't everything, if you sell 300k bags a year at 7-10 cent margins after exdocking your looking at $3,240,762 to $4,629,600 profit off physical if trading all colombians. There are guys that wildly speculate and can make way way more than that, or loose a fortune (they buy or sell without covering the otherside of the contract.) We try to limit that exposure and be happier with steady profits.
Specialty guys on the other hand sell lets say 10,000 bags a year of super high end coffee. They spend weeks finding each lot of coffee, marketing it, cupping it, and finding 25 different small roasters to buy it. In return they make 50-100 cent profit, your looking at 500k to 1.5mill profit. Low volume / high margin. All the growth is in specialty, as commercial coffee has limited growth as a segment, and outright contraction of some big players (folger) but Kraft is growing (Maxwell House, McCafe, Gevalia, ec.)
It's easy how a trader ruins his career in a year, he looses a lot of money. aka gets greedy and makes a stupid trade, or he just doesn't produce at all. He can also piss of the wrong guy and be blackballed, like I said this industry is dominated by a tiny amount of people. I'd say 25 top physical traders control 100 billion dollars worth of coffee (both present and future physical contracts for next 2 years or so.) Pissing off the wrong guy, poaching business by buying volume at stupid loosing prices, and you get blackballed and no one will trade with you. It happens.
Here's an example of loosing money via speculative short selling, which is very common. Kraft puts it out there that they want to buy Brazilian 3/4 Sweedish quality natural Arabica for 2017. They want to buy 10 containers a month for 12 months of delivery (they buy this exact contract 50 times a year.) You want the business and think Brazil is going to have a monster crop in 2017 based on el nino in 2016 and other geo-political and weather predictions. You offer a price of -30 cents below NY Ice price. Kraft accepts your bid and you sign unbreakable contracts guaranteed and arbitrated by the green coffee association of America. You decide to wait to cover the purchase side of the contract because prices are at -20 to purchase IN Brazil (10 cents cheaper than you sold it at in America, so your looking at a big loss if you cover it now.) You wait until late 2016, when a better idea about 2017 crop should come out. Everything goes smooth until summer 2016 (which is Brazils winter) and a major frost hits Brazil, wiping out 20% of Brazilian's southern coffee trees. Brazilian prices skyrocket to +10 in a panic, as the world scrambles to secure coffee to cover open shorts in the world's largest coffee grower. You have no choice but to cover at +10, and ship the coffee, or you get taken to court by Kraft, loose a fortune, and get banned from doing business for ever.
Breakdown of loss You have a commitment to ship 360 bags a container X 10 X 12 so a total of 43,200 bags... a big spread. Brazilian coffee is 60kg a bag so this works out to 5,714,323.20 lbs of coffee.
Lets assume the average NY price across all the futures months you bought and sold is an easy 100 cents per lb (this wouldn't happen as NY would skyrocket off a brazil frost but still lets just use it as an example.) You bought at +10 or 110 cents = $6,285,755.52 You sold at -30 or 70 cents = $4,000,026.24 Your loss is $2,285,729.28
Then you have your import cost of 8 cents so 8 x 5,714,323,20 or $457,145.86
So your full loss after exdocking is $2,742,875.14
You have to pay staff out of that, tax, and a bunch of other stuff. Loss is more like $3 mill Switches will probably invert in a situation like that so you may loose even more on futures, as well as on underheadged positions, and market timing, but that's an example for another day.
Now considering that each major import office sells 1 mill to 3 or 4 million bags of coffee a year, majority of it short, then you can see how this can become a runaway train. Conversely it can work in your favor and there are years where these companies make 100mill+. The majority of the big companies try to minimize losses like the example above while waiting for and maximizing the effect of the inevitable big year. Some play it safe and buy and sell coffee at the same time when making a trade, this way you lock in your profit. If you do it correct you never make $100mill+ but you never loose money. There are a few guys that have amassed fortunes doing this over 20-30 years of making 5 mill a year. Just takes time and a ton of networking / origin / roaster relationships and trust that you simply cannot get unless you work for one of them. They are the true establishment.
This was very helpful. Thank you very much.
Commodity Merchant/Trader Trainee Starting Salary (Originally Posted: 03/09/2016)
Could anyone shed light on what the ballpark starting salary would be for an incoming agricultural commodities merchant/trader trainee (in the US) at an ABCD? I've seen a pretty wide range of values
When it comes to energy commodities it really depends on whether you're working for a full fledged commodity house, a utility, a supermajor, etc. They all pay very differently. Check Glassdoor
I've had a look at Glassdoor. The search function there doesn't work well for me and I can't see too much data where it's clear what level of experience the traders have.
I'm more interested in compensation for commodity trading houses, large and small, but figured that given the size of the physical trading community here, it would be better to get answers from as many sources as possible, including utility and oil major guys.
Bump
55-60
You have to pay staff out of that, tax, and a bunch of other stuff. Loss is more like $3 mill Switches will probably invert in a situation like that so you may loose even more on futures, as well as on underheadged positions, and market timing, but that's an example for another day.
Now considering that each major import office sells 1 mill to 3 or 4 million bags of coffee a year, majority of it short, then you can see how this can become a runaway train. Conversely it can work in your favor and there are years where these companies make 100mill+. The majority of the big companies try to minimize losses like the example above while waiting for and maximizing the effect of the inevitable big year. Some play it safe and buy and sell coffee at the same time when making a trade, this way you lock in your profit. If you do it correct you never make $100mill+ but you never loose money. There are a few guys that have amassed fortunes doing this over 20-30 years of making 5 mill a year. Just takes time and a ton of networking / origin / roaster relationships and trust that you simply cannot get unless you work for one of them. They are the true establishment.
Can you explain these additional losses due to inverting "switches" (never heard this term) and the market timing?
GoodBread - could you chime in on an example metals trade as above? I have an interview coming up soon and they may ask about metals
On the physical side, the 2 most common types of trades for metals would be long-term deals (a large deal over say a year) and smaller 'spot' deals (which may or may not necessarily be priced spot) that will deliver anywhere from a few tons of a material to a few thousand over anywhere from a day to a few months.
Long-term deals are pretty tough to do unless you have access to production assets or are trading a very fungible grade of your product (something deliverable to the LME for instance).
In non-ferrous metals, your hedge your purchases and sales against the LME and essentially trade the 'premium' to deliver your product somewhere. In aluminum for instance, you have a regional premium for the region you are delivering to (still based on P1020 which is the alloy traded on the LME) and a premium for the actual product you are buying/selling (because there is a lot more to each metal market than the LME-grade stuff).
Some of the most common products have prices quoted by publications like American Metal Market, Metal Bulletin, Platts... You can see some example here (http://www.amm.com/pdf/Methodologies/AMM%20Nonferrous%20Metals%20Method…). Notice the wide variety of aluminum and zinc grades they have prices for. All of these trade at a premium or a discount to the LME price and offer chances to make money without taking a speculative position on the LME itself if you hedge accurately.
It's a pretty similar concept to trading the basis in grains as far as I can tell.
The margins are a good bit thinner in metals than they are in softs aside from very specific products (and still nothing like the specialty bags Coffee Trader was talking about).
Generally speaking, the higher the volumes, the lower the margins. Aluminum and particularly steel are high-volume low margin markets that are very competitive whereas copper, zinc, nickel and the like have far fewer players and better margins (just look at Glencore and even Trafigura's market share in those products).
A bit tough to give a good generic example that's actually interesting on the physical side, I have too many specific trades in mind.
I wonder if there's something similar to specialty coffee in minerals like diamonds
Concentrates and industrial byproducts like sulphur and aluminum hydrate might qualify. I can't imagine those are easy markets to build a book in right now. That's one thing coffee has going for it, the market for specialty has plenty of room and reasons to grow that aren't all that tied to the global economy.
sorry to hijack a 2015 thread - but does anyone know the numbers for London?
I recently attended a Glencore recruiting event & they said their traders are on 500k GBP in 5 years, on average... seemed way higher than I expected
are there any real data points at supermajors / trade shops?
# is real. Not easy to get in...or survive. Glencore is totally different payout style than a supermajor.
Re-reading this post now seems so quaint. Salaries have exploded in coffee, like most finance fields. Also trade deal flow and complexity are through the roof. Also the Brazil scenario I wrote out happened and was a hell of a lot worse in reality!
Ive been promoted to a senior partner and head of trading so my life is nonstop work, however if anyone has any questions let me know. Coffee trading is super secretive but the commercial side of the business is booming and there are plenty of jobs open.
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