Oil/Energy Trading superior to Prop Trading?

It seems to me that a lot of people these days think that trading oil and energy is better than trading equities or fixed income and I'm not sure why. I am not familiar with oil trading companies and their business model. Can someone shed me some light on the matter?

I know that a lot of prop trading firms make markets in derivatives. Some do high frequency trading in equities, some do statistical arbitrage and some take directional bets short-term and long.

What exactly do oil trading firms and other energy trading firms do and how do they make money? Do they just buy physical oil, store them and sell them at a higher price and make money off the spreads? Do they take directional bets on the price of oil? Do they make markets in the commodities futures market?

Thanks a lot

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Comments (47)

Jul 9, 2011 - 4:51pm
JSA, what's your opinion? Comment below:

@ HedgeTed

Thanks a lot for the link. It seems very helpful in understanding a little better what energy trading firms do. However, I should say that my question has two parts.

  1. What do energy trading firms do / what is their strategy?

  2. Why does it seem that people believe that physical energy trading is superior to traditional equity and fixed income trading? The reason I ask is that in a post by someone titled First New York Securities or commodity firm OP asks which would be a better choice between a respectable proprietary trading firm in New York that does a whole bunch of things, trades a whole bunch of products, and gives its traders a lot of freedom as to which products to trade and what strategies to employ vs. trading at a major oil firm. Nearly everyone answered major oil firm as an obvious choice. This makes me think that people consider oil trading to be superior to prop trading various financial products of one's choice (including oil futures probably). Why is that? Is there just more edge in trading physical oil that you can't find in any other product outside of energy? Is there currently less competition in the energy trading arena that the spreads are greater?

Jul 9, 2011 - 6:21pm
HedgeTed, what's your opinion? Comment below:
JSA:
@ HedgeTed

Thanks a lot for the link. It seems very helpful in understanding a little better what energy trading firms do. However, I should say that my question has two parts.

  1. What do energy trading firms do / what is their strategy?

  2. Why does it seem that people believe that physical energy trading is superior to traditional equity and fixed income trading? The reason I ask is that in a post by someone titled First New York Securities or commodity firm OP asks which would be a better choice between a respectable proprietary trading firm in New York that does a whole bunch of things, trades a whole bunch of products, and gives its traders a lot of freedom as to which products to trade and what strategies to employ vs. trading at a major oil firm. Nearly everyone answered major oil firm as an obvious choice. This makes me think that people consider oil trading to be superior to prop trading various financial products of one's choice (including oil futures probably). Why is that? Is there just more edge in trading physical oil that you can't find in any other product outside of energy? Is there currently less competition in the energy trading arena that the spreads are greater?

  • Energy Trading firms hedge their physical positions, Strategy: Long/Short

  • Firms that do Arbitrage (speculative positions) are often HFs like Clive Capital, BlueGold and BlueCrest

    1. Dont mention FNY, its superior...

    As a senior prop trader in a BB you can expect 16-17% of your generated income as profit. In a prop firm you can expect higher percentages, it depends on your track records and daily/monthly income figures.

    There is no position better than the prop trader to make tons of money. Senior prop traders at BBs like GS earn up to $100 million.

    *Mark McGoldrick, GS*Eric Felder, Lehman, now Barcap *Pierre-Henri Flamand, GS

    Oil Trading looks prestigious, watch CNBC or Bloomberg, more things on oil trading, than prop trading.


    Go to Kansas and ask local people if they know the terms proprietary trading and oil trading.

    Propattery Trading, whats that ? Sounds like technichal stuff...

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    Jul 9, 2011 - 7:48pm
    Jorgé, what's your opinion? Comment below:

    If I remember correctly, Hall's last windfall (the whole renting tankers thing) was through fundamentals. He held them for quite some time too if I'm not mistaken.

    People like Coldplay and voted for the Nazis, you can't trust people Jeremy
    Jul 10, 2011 - 1:57am
    monty09, what's your opinion? Comment below:

    Its the new new thing... since 2007 I have never seen so many people interested in the space. People say energy is the future so everyone wants on thebandwagon. Its a race for human capital as the Enron, El Paso, Dynegy folks are getting older and firms are in need of young bloound. While come make tons I would peg it at 1%, it is an industry of $200k-$500k

    Jul 10, 2011 - 7:29am
    JSA, what's your opinion? Comment below:
    monty09:
    Its the new new thing... since 2007 I have never seen so many people interested in the space. People say energy is the future so everyone wants on thebandwagon. Its a race for human capital as the Enron, El Paso, Dynegy folks are getting older and firms are in need of young bloound. While come make tons I would peg it at 1%, it is an industry of $200k-$500k

    Thanks a lot for your info. I appreciate it.

    Mar 16, 2014 - 11:36am
    Dece, what's your opinion? Comment below:
    monty09:

    Its the new new thing... since 2007 I have never seen so many people interested in the space. People say energy is the future so everyone wants on thebandwagon. Its a race for human capital as the Enron, El Paso, Dynegy folks are getting older and firms are in need of young bloound. While come make tons I would peg it at 1%, it is an industry of $200k-$500k

    Hm, any idea why it tends to plateau at the 200k - 500k level?

    I'd be quite interested in knowing the upside for oil trading.

    Nov 23, 2015 - 7:59am
    Origins, what's your opinion? Comment below:

    Some physical shops will pay up to 20% of book after costs.... star traders can make upward of $5-10mill in a banging year. Admittedly most don't, but $1 mill isn't uncommon at all. People who got into the business in the 90's and early 2000's made their money from being shareholders. These days it's different. Glencore has gone public and the others like Vitol, Trafigura and even Mercuria have grown to a size where they can't hand out stock like they used to.

    Jul 10, 2011 - 3:47am
    marcellus_wallace, what's your opinion? Comment below:

    Why does 1 or the other always have the best choice on WSO? Depends on your personality and what you like.

    Also really depends on the firm. Some parts of Energy Trading are very prop and spec related, also its based around markets that are not equities.

    I find equities boring myself and do not see how FNYS is so superior and great job on here as so many people like to say.

    Jul 10, 2011 - 8:37am
    JSA, what's your opinion? Comment below:
    marcellus_wallace:
    Why does 1 or the other always have the best choice on WSO? Depends on your personality and what you like.

    Also really depends on the firm. Some parts of Energy Trading are very prop and spec related, also its based around markets that are not equities.

    I find equities boring myself and do not see how FNYS is so superior and great job on here as so many people like to say.

    Thank you for your opinion. Are you currently in the energy trading industry and are you also familiar with FNYS?

    Best Response
    Jul 10, 2011 - 5:31pm
    marcellus_wallace, what's your opinion? Comment below:
    JSA:
    marcellus_wallace:
    Why does 1 or the other always have the best choice on WSO? Depends on your personality and what you like.

    Also really depends on the firm. Some parts of Energy Trading are very prop and spec related, also its based around markets that are not equities.

    I find equities boring myself and do not see how FNYS is so superior and great job on here as so many people like to say.

    Thank you for your opinion. Are you currently in the energy trading industry and are you also familiar with FNYS?

    I work in Energy Trading, on the natty side. Also have worked in Fixed Income before. I find equities boring compared to other asset classes. That said, I just looked through FNYS site, did not know they trade more than equities could be a very interesting gig. It all really depends. Just like it would if you were comparing FX at DB vs FNYS, or Rates at Barclays to FNYS. Depends on what firm and what exactly they do.

    Jul 10, 2011 - 12:12pm
    monty09, what's your opinion? Comment below:
    marcellus_wallace:
    Why does 1 or the other always have the best choice on WSO? Depends on your personality and what you like.

    Also really depends on the firm. Some parts of Energy Trading are very prop and spec related, also its based around markets that are not equities.

    I find equities boring myself and do not see how FNYS is so superior and great job on here as so many people like to say.

    agree 100%...... whats best for me if not best for anyone else.... my #1 could be the worse thing for someone elses career

    Jul 10, 2011 - 1:25pm
    eydey, what's your opinion? Comment below:

    monty09, true what is best for you might not be the best for someone else. But in relation to the thread, what would be your personal choice between becoming an oil trader or a trader in prop trading firm ? And why ?

    Jul 10, 2011 - 4:28pm
    monty09, what's your opinion? Comment below:
    eydey:
    monty09, true what is best for you might not be the best for someone else. But in relation to the thread, what would be your personal choice between becoming an oil trader or a trader in prop trading firm ? And why ?

    I am an Texan and wanted to be close to home. Honestly thats it for me and will always be enough

    Jul 10, 2011 - 4:46pm
    eydey, what's your opinion? Comment below:
    monty09:
    eydey:
    monty09, true what is best for you might not be the best for someone else. But in relation to the thread, what would be your personal choice between becoming an oil trader or a trader in prop trading firm ? And why ?

    I am an Texan and wanted to be close to home. Honestly thats it for me and will always be enough

    Fair enough, monty09, could you please tell us about careers in oil trading ? anything that could be of interest... especially for a person who is soon to join an oil major as a trader (my case). is there possibility for significant financial upsides in oil trading?

    thanks

    Jul 10, 2011 - 3:27pm
    Walkerr, what's your opinion? Comment below:

    I was talking to this guy the other day and he mentioned someone at Shell doing deals after work over the telephone. What would you classify this guy as, because I dont think he's a screen trader. Right?

    Good questions above btw. Thanks

    Jul 10, 2011 - 5:18pm
    eydey, what's your opinion? Comment below:

    Are you in any way involved in the energy business? if you know that industry, could you share some advice, tips about career in oil trading or energy trading. if not tells us about the industry you are involved in, just general career advice....

    Jul 10, 2011 - 6:04pm
    eydey, what's your opinion? Comment below:

    thanks marcellus_wallace,

    can you tell a bit more about careers in energy trading... advice, trends, career exit,firms,job security,bonus, whatever...

    would appreciate it very much

    Jul 10, 2011 - 9:03pm
    Jorgé, what's your opinion? Comment below:

    search for the "ask monty09" thread, lots of nuggets in that one.

    People like Coldplay and voted for the Nazis, you can't trust people Jeremy
    Jul 11, 2011 - 12:13pm
    ProdigyOfZen, what's your opinion? Comment below:

    I really am surprised. These are the type of guys who get oil trading positions at major oil companies? No offense eydey but I fear for our future.

    You ask decent questions but most of this stuff you can find out on your own. I thought they liked entrepreneurial people at most commodity places?

    This is part of the problem, none of these young kids know anything of what is going on and they get into these positions and taught the exact same thing as the previous 30 traders. This creates group think, maybe the reason why we keep going through the same ridiculous problems.

    The one who does not fall, does not stand up
    • 2
    Jul 11, 2011 - 12:43pm
    eydey, what's your opinion? Comment below:
    ProdigyOfZen:
    I really am surprised. These are the type of guys who get oil trading positions at major oil companies? No offense eydey but I fear for our future.

    You ask decent questions but most of this stuff you can find out on your own. I thought they liked entrepreneurial people at most commodity places?

    This is part of the problem, none of these young kids know anything of what is going on and they get into these positions and taught the exact same thing as the previous 30 traders. This creates group think, maybe the reason why we keep going through the same ridiculous problems.

    prodigyofzen, you do raise good points, but I think you exaggerate or worry too much...

    there is nothing wrong in asking for people advice when about to make a major career move. I don't know what you mean by entrepreneurial, but going to a forum and asking questions probably fits more to the concept of being entrepreneurial,rather then just using google.

    I do not use this website as my only source of info, I do know people working in finance and have sought their advice. however, i think that it is important to explore a question fully, from different angles and perspectives before making a decision.

    Jul 11, 2011 - 12:53pm
    ProdigyOfZen, what's your opinion? Comment below:
    eydey:
    ProdigyOfZen:
    I really am surprised. These are the type of guys who get oil trading positions at major oil companies? No offense eydey but I fear for our future.

    You ask decent questions but most of this stuff you can find out on your own. I thought they liked entrepreneurial people at most commodity places?

    This is part of the problem, none of these young kids know anything of what is going on and they get into these positions and taught the exact same thing as the previous 30 traders. This creates group think, maybe the reason why we keep going through the same ridiculous problems.

    prodigyofzen, you do raise good points, but I think you exaggerate or worry too much...

    there is nothing wrong in asking for people advice when about to make a major career move. I don't know what you mean by entrepreneurial, but going to a forum and asking questions probably fits more to the concept of being entrepreneurial,rather then just using google.

    I do not use this website as my only source of info, I do know people working in finance and have sought their advice. however, i think that it is important to explore a question fully, from different angles and perspectives before making a decision.

    Hopefully my analysis here will shine a light on you. I stated the above to help.

    Just remember to think out of the box at your new position and not to follow all the dogma either industry/firm spew out (FNYS and Major Oil Trading Firm)

    good luck.

    The one who does not fall, does not stand up
    • 2
    Nov 25, 2015 - 5:28pm
    monty09, what's your opinion? Comment below:

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    Dec 3, 2015 - 3:59am
    financetradingnews, what's your opinion? Comment below:

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