Physical vs Financial (paper) Commodity trading
Wanted to understand the difference between physical and financial commodity trading in terms of compensation and career progression.
Heard that certain (paper) shops let you trade 12-18 months out? Wanted to know which one (Paper or physical) has a faster allocation to risk-related roles (and the trajectory required to land such roles) and how the trajectory typically looks in physical vs paper trading. For physical I understand it's pretty diverse and often very long, TDP -> jr trader OR MO/BO roles until you land a trader position or even an ops role after TDP. However, I was pretty confused regarding the trajectory in terms of paper/derivs.
For example, how does progression typically look like at someplace like Hartree, Freepoint, CCI, etc...? Do they tend to promote to trader roles internally or do they hire externally? I've heard they mostly use "hybrid" strategies that lean towards paper so not rly sure what exactly their day-to-day operations look like.
Heyo,
Power Trader (derivatives) of over ten years here. It’s going to vary widely depending on which commodity you’re talking about, but there is such thing as forward phys trading, in gas or crude for example. Crude/NGLs are heavily relationship-based, but the guys that are selling equity production, like at a major or E&P (I started my career at one) trade long-term contracts all the time. At my particular shop, senior management believed hedging crude was a “zero-sum game”, so they didn’t use any crude derivatives. I disagree with their approach, but I’m also biased towards derivatives. On the gas side we did both, including derivatives (futures/basis hedging and options). The career path into a trader in either of those cases was prob like on average 6-10 years. On the crude side it was typically analyst -> scheduler -> trader/marketer. But largely depended on who left. They’d usually make internal hires for those roles, although occasionally hired externally. Power was my quickest way into trading. I jumped from the back of the back office straight into a trading role (RT trading) after 2.5 years, spent another 2.5 doing that, built up a successful track record, then since have been working for hedge funds/prop shops for the last 8+ years. But really it all depends on: can you make money as a trader. It’s a lot less guaranteed than career progression in other roles. If you’re only job is to make money, and you’re not doing that, you’ll be relegated to something else at some point. Comp can be segmented, but there are ways to speculatively trade physical commodities and get a nice bonus % allocated to your book. At a major/E&P, you’d be lucky to get 10% of what you made. Hedge funds/prop shops can often/will pay as high as 20-30%, I’ve even heard of 50% of book in a few rare cases, but that was usually if you were using some of your own capital. Career progression and comp generally just depend on performance, something you can’t really predict ahead of time. And yes, many shops like mine allow you to trade further out on the curve. The trajectory is very non-standard. And sorry, but I really don’t know what progression looks like at those places. I interviewed with Hartree before, but didn’t like them, so I declined further interviews. Hope that helps some.
Thank you very very much, it does seem like the structure/progression is very in-the-dark with the shops. For a field like Crude/Refined Products would you recommend doing a grad program at a major/E&P and working your way up to being a trader there so you can eventually move to trading at hedge funds/prop shops or would you recommend taking an analyst offer at a shop and progressing to becoming a trader there? freepoint and CCI esp seem very hybrid to me in terms of phys/paper.
If I had to choose one or the other, I’d prob recommend starting at a major or E&P - this is a safer route. And trading at a place like this is totally rigged in your favor. That’s why we didn’t necessarily call the crude reps “traders”, bc they weren’t really wearing risk. We called them “marketers.” You’re inherently long oil based on what your company produces, so you’re trying to get the best price for it you can by selling some on a long-term basis and some spot, etc (will vary based on internal views/management preferences). You may find this route desirable over trying to be a risk taker once you get into it. So my three main questions would generally be: 1) where are you based/willing to live in Houston area? 2) what’s your general risk tolerance/aversion? 3) why do you want to be a risk-taker?
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