commodities trading startup
This is the only forum where I was able to find and read posts from actual physical commodities traders and I would appreciate hearing your thoughts on starting commodities trading business (a physical commodity trading company) with $20k. For the sake of argument, let's say I have covered my operating expenses for 1 year, setup offshore company and have background in international commercial law.
Depending on the commodity you're trading and the structure how you'll buy/sell. I wouldn't think that $20k would be sufficient operating cash flow to be honest.
I would have to agree with this, in my particular commodity a single contract can sometimes cost up to about $20K... That's not to say that you wouldn't be able to start out in some of the lower grades but if a trade runs offside your in big trouble. Can you apply for a loan?
I agree with you the only option in this case ($20k) is to properly structure a buy/sell contract and maybe find a niche commodity otherwise you cannot do much with peanuts. BTW can you tell me what are you trading and where are you located ?
Dude. nobody is going to back to back a deal with you if you only have $20k. You do not qualify as a creditworthy counterparty.
I trade dirty bulks in Asia - coal, petcoke, bauxite etc. $20k is not enough capital to trade finance cargoes with starting value from $2-10 million USD.
I came up with this start up idea after reading story about Vitol Group owners. They have started their business out of tiny Rotterdam office and small budget catering local oil buyers in Netherlands and Germany, similar patterns you can see in Mercuria Energy and so many other examples is out there but no one read them or pay attention. Now, after checking your comments those guys were either a.) super lucky & insane b.) in the right place at the right time (maybe it was much easier to launch a commodities trading business in 70s because of different macroeconomic environment, cold war, less connected world/internet/e-comm. more arbitrage opportunities) or c.) they were just a front men operation for some bigger players and everything else is just a fairy tale. Do you think $500k, $30m credit line from BNP Paribas and +15y exp. from Glencore metals desk is enough to start own venture today? Put joking aside, what do you think is the right amount of cash and is there still a window of opportunity to start commodities trading business in i.e. niche agri. or renewables in today's environment?
People do start their own shops in the ag world. Usually they’re senior traders with their own large book that requires minimal assets or a mid-senior trader who just wants to own their own elevator/feed mill for whatever reason. These traders often either have to source investors or are backed by a client or a shop without a footprint in the area. Lansing started that way in the early 90’s and grew to a major player before their acquisition.
You joke but $500k is still light in the bigger markets. I know someone who started his shop with that kind of experience but he was sitting on closer to $50M.
The Vitol example is 50+ years old! There basically was no oil market back then. You would need to at least multiply your capital by 10 and find something incredibly niche to focus on (certain scrap grades perhaps) and find people willing to give you good terms.
Bro who is going to give you credit if you only have $20k? What are you going to do? Buy a barrel of oil and put it in the back of your truck? Like what if somebody hits you and you spill your oil on the floor...that's gonna cost you like $100k right there, and then you can't buy another barrel.
You need a lot more than $20k. You cannot even get enough volume for a standard contract for any commodity.
Lmaooo
Funny example, I like it :). Understanding incoterms and cargo insurance are here to prevent situation like this but hypothetically you are right.
Guess you've never dealt with an insurance company before. You'll be waiting 4 months for that cheque before you can buy another barrel.
There are publicly listed companies that we don’t like to give credit too. No one serious will give a basement shop with 20k credit. The few that will - just want and see what bid/ask they quote you.
AND you will most likely need to pre pay
.
Also physical trading is an incredibly low margin business relative to most ventures, so your working capital needs would be quite high. Most of the trade shops (Vitol, Glencore, Trafigura, etc.) have extremely low gross profits margins (i.e Trafigura 2%). https://www.trafigura.com/media/1483/2014_trafigura_the_economics_of_co…
with 20k, just go trade 1-2 futures contracts and shoot your shot
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