My cautionary tale about the commodities industry and just how unstructured your progression can look.
I’ve been in physical commodities for the better part of a decade now. I was attracted to the industry for the same reasons many people here are. I feel I have a very solid pay package (150 - 200K in a LCOL city), great WLB (40 hours a week), and enjoy a fairly relaxed environment. Realize it's a great situation all things considered - one that most typical Americans would kill for. However, it’s important to understand just how unstructured the progression in this industry could look.
Keeping it purposefully vague, I work in a fairly simple product, with very old school trading methods (shaking hands, visiting customers, logistics solutions, etc).
I started out at a small shop. I learned incredibly quickly, got rapid raises/promotions, and thought I was well on my way to becoming a trader.
When I actually got exposure to the dealmaking side of the business, I got humbled fast. Scraping together a book from scratch is extremely tricky - and largely about connections, knowing the inside scoop of how everything works, and having the internal clout to ride out a bad position. There’s a reason why it’s the same few traders sticking around and getting recycled forever. Basically my actual skills developed way faster than how long everything else would take. Definitely a bit of an old boys club network in some industries too.
I left for an opportunity at a global shop. I would be working for another trader’s book (can be a red flag), but it was a real shot to run a new project/asset. This new desk ended up being unprofitable due to structural reasons, and I was kinda caught in the crossfire. I also encountered some downright fuckery - typical stuff over bonus payouts, fighting coworkers over a deal, etc...and none of these nasty politics would be apparent to anybody a couple steps away.
The lesson is you need to scrutinize trading jobs very carefully, and to have a clear idea how everything will look. A lot of places continuously add and get rid of new traders all the time.
Now that brings me to today, where I’m in a senior non-trading job. I would just be careful in warning someone about doing something like risk/traffic/etc longer term. Despite platitudes saying otherwise, most trade shops still feel very trader-centric in terms of how they are run. And be prepared for fairly boring and menial work - a lot of my day is spent doing silly tasks, and the range of people is extremely wide to say it lightly.
Fully agree. So many oil traders shuffling jobs- it seems like almost every pod at the multi managers turns over in 2 years and a huge portion joining a so called up and coming physical business like Exxon and Aramco mass quit soon afterwards. It’s really a sweet spot of platform, culture, personnel, opportunity, timing for things to work out and it’s not easy to get all of those right. And if you aren’t trading- good luck having any structured career route- outside of a couple years in a TDP- no one cares about developing your career and it’s all up to you to make it work.
That’s why it’s so important to get a guarantee as a part of your contract. Make sure the guarantee is enough to last you a decade. You need to be compensated for the extra risks incurred by changing shops. I’ve seen guys leave very steady and cushy 7-figure jobs for other shops that give 8-figure prospects but end up getting fucked over by politics/deceptive behavior/downright fraud on the new employers behalf. Many times it’s not worth changing jobs after factoring the career risk, hence a guarantee is so important to protect from this massive risk
what type of personality do you see become traders -- or do large % already have personal connections?
So I've only seen a couple cases where people jumped into trading roles at my type of place. I would say being fiercely driven to make money and being a hustler is important. Not all of the business is above board either - just read World For Sale, or look at any of the scandals these places have been in.
A much more established pipeline is to get a bunch of experience at an integrated big company, and then go to a trade shop. I've seen people from this route to be much more 'normal' and having a wider range of personalities.
Are those unsavory deals common? I'd imagine this would be mainly be confined to crude / ags vs nat gas / power.
Getting into a commodity trading seat is extremely difficult and like others have suggested if you are not in a TDP program its going to be very unstructured and you will have to really be something special to get a chance to trade. But if you do get that chance its a very rewarding and interesting career. In terms of jumping shop to shop, people are always lured by the big signing bonus and potential payouts but at the end of the day you just need to make sure its worth it and you really need to be able to have the confidence in your trading ability.
It's unsexy & I am sure the energy/power/o&g guys will roast me for this...but if you really want a risk taking seat, go to one of the mid-size ag shops. Thing Scoular/Andersons. Yes, you are not chartering VLCCs. You're going to start trading trucks and rail cars of grain/feed - but there is a path to prop books and trading paper if you're good. Yes, you will have to earn your strips calling customers & suppliers. No, you won't get paid as much as you would as at a TDP. However, you will get to put on risk faster and actually trade and actually have a chance to make meaningful comp.
You will be called a 'merchant' or something dumb like that...but at the end of the day, when you're getting paid out of your p&l, it's all green. It's way easier to get in the door at a place like that...but I would agree it's highly unstructured after your 1st or 2nd year. People develop a reputation internally (good or bad) that's hard to shake quickly.
I do not think your wrong at all, getting into ags is slightly easier especially straight out of university. Comp is usually lower than energy especially off the start but it is a less competitive path typically although getting a trader seat regardless of commodity is never easy. The market is also a little more old school
Got a lot to unpack on this since what the above poster said is dead on but would like to add some nuance especially for the non-Scoular type and to be a bit of a devil’s advocate in general.
In agreement with doing ags versus energy as far as timeline to risk taking. Right off the bat you will be handling physical trading (merchandising) which guys in energy will grind out years in ops/tdp to get a taste of from what I can tell.
However, something that doesn’t get talked about enough is the discrepancy in pay. You will be making less than people going to the banks and even guys in the energy space right out of school even though you are making material contributions to P&L. This is somewhat evened out by lower cost of living generally. Next point to bring up is the trajectory of comp/path to paper. Most of the large shops especially those that make a good bit of their money from trading paper do not value their physical guys in any meaningful way. At an ABCD pretty much nobody is making more than a couple hundred max. The exception are the guys slinging paper in Geneva. There is technically a path there but what I’ve heard is that they are increasingly recruiting kids straight out of schools giving extremely brief rotations if any through a physical asset and putting them to task. So unless you are one of the chosen few who went to Dartmouth in the case of Louis Dreyfus those shops often won’t even let you sniff paper at least in a timeline that feels real even if you are a physical trader.
I should also make note of scalability at these mid-sized shops that still give cuts of your profit. Rail scales pretty well giving you the chance to make a lot of money but trucks are simply a great deal of effort per bushel of grain moved so you might find yourself capped as to how much money you make since the number of rail seats are limited. Since these shops typically run lean on logistics and other back office staff to keep costs low you end up doing their work a lot of the time. To be fair though it’s the type of task you would find yourself doing in energy full time out of school without any of the good stuff involved in trading.
A scenario to think about. You are five years out of school grinding out decent profits for your employer and the guy in energy who has been making the same money as you if not a bit more has just gotten their first touch dealing crude will likely make multiples of you in a 2022 type of year where markets in general go crazy in all commodity markets. You have to be okay with the idea of that to be in ags. That all said there’s survivorship bias, since this is predicated on the idea you get a tdp seat or you can outlast the grind of ops in other shops and do well. Looking from the outside, ops rewards detail oriented guys as opposed to market focused people. I personally know my work style doesn’t do well with accounting/back office stuff and I probably wouldn’t have done well enough to progress to the trading side of energy in the first place.
I’ve seen a number of folks walk away from the ag space due to the above creating something of a burnout and these aren’t folks who are simply bad, but rather feel they can make more doing something else which is probably true.
I write this not to discourage prospective folks but just to let you know what you’re getting into from the viewpoint of someone a few years out of school trading grains. I had the chance to go the energy path and while I sometimes wonder what I’d be making on the other side I don’t have regrets. At the end of the day I make good enough money living in a great area working on really interesting stuff at a shop with a great culture doing 40 hrs/wk.
By the Dreyfus comment, do you mean that top LDC guys making more than the "couple hundred max" or are they the guys making that money and the rest of ABCD is making less than that?
I posted the anon comment this is replying to. Totally spot on. As you can imagine barrier to entry and max comp potential are very much a direct correlation. If you are truly interested in trading, managing risk etc you cant beat the ease of entry in ags. Shops are way more keen to allow you to learn to manage risk (and screw up - more crucially) on a dog of a product like DDGs.
When you said the guys slinging paper at Geneva, did you mean they get to trade futures/options on CME/ICE(/DCE?) or FOB paper at major origins like Argentina/Brazil/SAF? Or perhaps both?
If you are sharp, and know how to work well with others, then it isn't difficult to get yourself into a situation where you can trade a small prop book. After that, it's all up to you. Pretending that it isn't possible is a cope to make you feel better about your own career.
"So unless you are one of the chosen few who went to Dartmouth in the case of Louis Dreyfus those shops often won’t even let you sniff paper at least in a timeline that feels real even if you are a physical trader."
This is objectively false. Again, you are projecting. Where you are in your career is not the product of not having attended Dartmouth and getting a seat at LDC. One of Citadel's ag PM's went to K State.
I know of a 23 year old that got a chance to trade a very small prop book at a physical trader after impressing the team during his year on the desk. He went to a school I can't even remember the name of.
I went to Dartmouth and also worked at LDC as a trader. Great learning experience absolutely! I will say, expect to be underpaid compared to the HFs for the better half of 10 years. Once you are head of desk, expect to make the equivalent of a PM at a MM.
Some great perspectives in this thread have been given for energy and ags already but I’m curious if anyone has advice or stories from metals. Been in the industry for a year now so more interested in major career/comp differences from energy/ags especially at different levels of progression if anyone can assist.
Bump for metals also interested
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