Maybe it's because it's more of a Euro bank thing but I don't think I have ever seen commodity trade finance discussed on WSO aside from somebody asking about a job opportunity years ago. It's one of my default recommendations for people looking for internships before applying to physical trading jobs but I must confess I don't personally deal with commodity bankers much because I'm at a larger player.
Does anyone on here work in the field? Any idea what lifestyle, comp is like? I would think the more vanilla stuff ends up being like general trade finance (Citi TTS style) that is becoming almost entirely automated, but structured products like pre-export financing, borrowing bases, inventory financing... is that reasonably interesting and ok lifetyle-wise?
I'm just kind of surprised this field has gone so under the radar on here even if it's not super sexy.
Hi GoodBread, hope I can help. Do any of these links cover what you're looking for:
You're welcome.
So this is too niche I guess?
I work on a commodity trading desk, and I have no idea what you're talking about, or maybe it’s just that different terms are used in Europe vs the US.
Are you talking about companies that provide funding to commodity trading teams to capture arbitrage opportunities?
Banks who finance physical commodity production, trading, processing...
Can be things as simple as an LC for a grain shipment or structured products like pre-export financing, borrowing bases, inventory financing (which are like repos with commodity inventories - pretty common in metals).
This is not stuff you would really deal with if you trade paper but it's how most of the physical industry is financed.
Most of the BBs don't really work in commodity trade finance because they don't like taking the risk associated with the physical. Instead, most Euro banks have pretty established offices around the world and lead this field (SocGen/BNP/Macquarie).
Pretty chill compared to banking (60 hours/week) but only gets bad when certain transactions go bad.
That's one thing I have trouble wrapping my head around. It's not exactly a short vol game, but you are definitely short fraud in a way few sectors are (thinking the Hing Leon case for instance). From what I have seen of banks ending up with inventory from defaulted financing deals though, they are able to get solid deals for themselves.
I know what you are talking about. At my previous bank, we did a lot of these deals. And thus; I had to spread “comps” on their syndicated loan deals.
Tenaska Marketing Ventures Hess Trading aka HETCO aka Hartree Mercury Trading There’s 3-4 more, I still have info on it if you are interested in knowing more. What’s the end goal? I think they make $$ off volatility of prices or something
Basically trying to figure out if relationship management in the field would at all be a viable exit opp from physical trading if I ever wanted to slow down at some point, or if that's a terrible trade.
Sorry, have 0 insight there.
Reading through the comments here and this is a very niche business. However, if you're looking to move from physical commodity trading to a slower role, I’d look into an originator/market representative. Effectively maintain relationships with buyers/sellers and help market their commodity needs.
In North America merchant banks and some hedge funds are active in this space... In O&G, the majors and traders themselves will take up that role, places like BP have massive structuring desks that offer alot of services to producers
Worked for an Oil major, we are mostly financed by European banks (with open limits), sometimes there are prepayments but often with doc LC as counterparties are risky. It is a niche market, well compensated but it is well known that it lacks of sex appeal, especially for younger population. However, as it is paramount in the physical trading side of commodities, it will be still needed so expect a rise of comp to attract new guys. Moreover, this niche market begins to be superseded by hedge funds and PEs that are financing more and more actors in the commodity trading industry.
Thanks. Yeah the lack of sex appeal but well compensated combo is not something I am necessarily against. Seems like an interesting option if you start to get burnt out trading.
To be honest, don't know anyone that did trade finance and moved up to a trading position, it is more ops / middle office and then trader.
I forgot to mention that rates at which they finance each transaction are really high for banks, it is juicy business till a scandal blows everything up. As margins are really low, it requires circa 200 smooth transactions to offset one failed transaction in terms of revenue for a trading firm
Right, I'm referring to making a move in the opposite direction if I ever want to slow down, which is also unusual, but I think I would have a better nose for sniffing a 'Hing Leon' out than your typical trade finance person.
Yeah, picking pennies in front of a steamroller, as evidenced by BNP or ABN Amro the past few years.
Interesting. But not the best option it is highly technical and you're still under a lot of pressure within the biggest trading houses, I think being a consultant of energy for example in your field of expertise (eg oil in Lebanon) for an institution has a better pace and better perks...
Commodity trade finance deals with managing the essential liquidity requires for trading and operations. That can be from financing LCs as you pointed out or storage\terminal\warehouse financing, having credit lines with counterparties & banks, settlement contracts and rules with counterparties etc. Its not as sexy as trading definitively. However structuring -a part of trade finance is somewhat sexy and attractive wherein they are creative in making deals and essentially can save lot of money for firm thereby making lot of money by bonuses(after mid career). However it tends to be technical finance dealing with rules,laws, regulations and understanding capital markets etc
Have been in commodity trade finance desk with an European bank as a front office role (commodity banker track basically) for close to 3 years - thinking of moving out every single day yet realised there are very limited exit opportunities after few attempts to escape.
Flat learning curve, tedious and repetitive daily workload, no hard skillsets to be developed, ultra vanilla product suites, relatively slow paced, low margin, etc etc - personally, for recent graduates / young professionals, my genuine advice to you is to think twice before starting off your career here, assuming you fancy something more dynamic and allows you to sharpen your analytical skills, which is more transferable and could be leveraged in your next role. With said, it is still considered a good option for your pre-retirement career when you just want to stay chill.
Thanks for the feedback. Yeah probably doesn't make sense to move over from trading right now but seems like it could be a nice change of pace when I start getting decrepit, plus I would hope my background is a value add.
Eum molestiae quisquam repudiandae eius laudantium molestias. Id cum quia ex. Voluptatem ducimus ad ea dolores molestiae cupiditate.
Necessitatibus consequatur temporibus aut sit id sapiente porro nesciunt. Laboriosam nostrum ea ipsum iure laborum consequatur voluptatibus. Voluptas nihil quia fugit commodi. Non quos soluta et quia deserunt aliquid voluptatem.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...