Commodity Trading is Dead

AlphabetTrader's picture
Rank: Baboon | 169

I currently work as a physical commodity trader at a large, international, trading house. Trading is dead. Most desks are printing massive loses. There is no volatility in the market and most commodities we trade suffer from massive oversupply. Baring a massive exogenous shock, I don't see it changing in the next 5+ years. Unfortunately the skills learned in trading physical commodities are pretty specialized. My question is, have other commodity traders switched career paths? What have you switched to? What skills transfer and which should I emphasize on my resume?

Is commodity trading dead?

Certified user @marcellus_wallace on liquid natural gas and energy markets.

Expect massive changes in 2019 forward once LNG becomes a main focal point. I disagree that trading is dying, is it harder? Yes, its super hard these days and consolidation has finally started most places. But on another hand, we are seeing assets finally get locked up for 20 plus years in lots of markets which means vol will be coming back. Lots of people are running models from 2008 or even 2014 still and need to move on already. There have been probably 4 major trades this year that killed or some did well on for natty/power vs in 2012 when literally there was zero vol.

Certified user @nofundforoldtraders on market volume, the death of trading and remaining stoic during tough market conditions.

I'm a prop trader at a firm that I see people mention on this board from time to time. Plenty of volume and vol in crude oil futures, as well as TBond futures.

Often, when a trader can't figure out how to make money in the market, they will say "trading is dead" or "humans can't compete with the algorithms" but this is bullshit...It's really just a failed trader saying "I don't know how to adapt to this market environment"

It is very common for a young trader to learn one technique to make money trading, and then exploit that technique for as long as they can...but when that technique stops working...you either adapt...or die (well, in this business, retiring feels like a death). I have seen this many times, and I'm sure I will see it again. Traders who have "failed" and conclude that nobody can make money in this environment. What they really mean to say is "I do not know how to make money in this environment" but that is a very emotional and difficult thing for a trader to say.

As a trader, you must be confident that you will be right...that you know better than the rest of the market (else, you would never put on a single trade)....and when that confidence turns on you, it really does feel like a death. So, either you learn how to adapt (or your trading model does the adaptation for you) or you lose money until you quit. I've seen this happen to friends and colleagues of mine....some were able to adapt...others were not. Those who failed never were able to say "I don't know how to adapt" ...they would always say "these markets are untradeable" but that is their ego talking. This is a very emotional business. You must understand and conquer your own emotions if you are going to survive.

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Comments (108)

Sep 24, 2017
AlphabetTrader:

I currently work as a physical commodity trader at a large, international, trading house. Trading is dead. Most desks are printing massive loses. There is no volatility in the market and most commodities we trade suffer from massive oversupply.

What product desk are you on?

Sep 24, 2017

I trade soft commodities

Sep 24, 2017
AlphabetTrader:

What skills transfer and which should I emphasize on my resume?

Skills learned in trading are easily transferable into other industries. The commercial experience can be applied into a lot of career paths

1. International commercial experience
Regional/domestic sales & marketing at large MNC

2. Sourcing
Procurement/buyer/sourcing for raw materials
companies e.g: ingredients, food, stockfeeds

3. Shipping and freight/port operations
working in terminals, shipping lines or brokering houses.

4. Rail/barge/truck in land operations
working at a freight forwarder in operations or sales like Expeditors, DHL etc.

5. Derivatives/hedging
Working at a BB on a derivatives desk; market making

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Sep 25, 2017

but the oil traders are making big money like Traf never had aloss

D.I.

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Sep 25, 2017

You don't believe this is temporary? I just accepted an offer into a training program on the commodity trading path

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Sep 24, 2017
ASUgrad2017:

You don't believe this is temporary? I just accepted an offer into a training program on the commodity trading path

Depends on your timeline and commodity I guess. I don't see it changing in the next 5ish years for what I trade. Also the industry is going to go through a lot of consolidation in the short run.

Sep 25, 2017

hard commodity, and I still have half a year until I start and then three years of training before I start trading.

Sep 25, 2017

I've been limit up and down quite a few days this month, in ags/softs - so maybe it's more desk specific. I think the volatility is there in the right product. That being said margin environment for physical assets is tough at the moment in certain geographies which can hurt.

Sep 24, 2017

Margin is tough for thermal coal especially with Chinese restriction rumours. Prices are on the upside with potential to go a bit further in the Asia region, because of this we're not seeing much buyers willing to commit to spot trades. The buy/sell imbalance (eg. buyers market, sellers market) will always exist and knowing when/where to execute creates the opportunities.

I'm no expert on soft commods but the whole volatility could change if there was an intense El Nino/La Nina event to happen in one part of the world?

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Sep 28, 2017

US thermal coal is moving to Europe this year. At least from the Midwest/East. France has numerous nuclear reactors down due to terrorism concerns.

Sep 25, 2017

Margins are tough across much of the grains/oilseeds space (general theme of bumper crops). Softs are seeing decent volatility, lots of it weather driven.

Yes any sort of weather event can have a real effect on the market - and anything that heats the ocean up will support hurricane conditions (think U.S gulf) as the heat from the warmer oceans is what gives the recent storms their energy.

In turn that gives you the variance & volatility in supply that makes things interesting.

Sep 25, 2017

this is a perfect bottom ticking post. similar to big exits at the ABCD firms.

Sep 25, 2017

I think energy commons are for sure dead..unless you are in the physical markets and have storage, transport etc. it will be a very difficult few years ahead. it was hard to make money speculating in a volatile px environment, even harder now with no vol.

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Sep 25, 2017

This is exactly what I thought about my commodity a year ago. The last 12 months have been absolutely insane and I am oh so glad I stayed put.

Yes some commodities might be in tougher spots than others, but if you're on a good desk, being patient can pay real dividends.

Sep 25, 2017

I spend half my time looking at/trading crude and distillates. While you could argue the price has been "dead" since late 2014, volatility is there and it's definitely coming back.

Sep 26, 2017

Re: Nat gas - Its been a tough year no doubt. Almost everydesk is having a tough go this year, I know quite a few gas guys who have stopped out going long HH & Dom earlier this year. But we are making money trading spec + optimizing out assets. Those who are still around will have a good opportunity ahead of them. Vol is picking back up for sure and there might be some big trades coming up as fundamentals are finally starting to shift.

Our power guys are killing it though

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Sep 27, 2017

Nat gas just suuuuucckkks right now. I've been on both sides this year bank and hedge fund in ng trading.

We won't see meaningful vol pick up until fed sufficiently raises rates and Wall st stops financing shale players cash burn. Otherwise, ceiling at 75 where you'll see biggest drilling boom in history in response and definitely lower for longer.

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Sep 26, 2017

the fact that we have seen 1bcf pick up since rover gives me some concern. The fact that Rox prod is also holding steady and REX is discounting again makes me lean bearish ng, esp midwest basis

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Sep 28, 2017

What have you switched to? What skills transfer and which should I emphasize on my resume?

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Sep 28, 2017

this has been one of the toughest markets i have seen in my career. I know a few firms making money but its def 3x harder than it was in years past. My whole career has been in the space and im in for the long run...

Sep 28, 2017
Sep 28, 2017
papertiger:

Will Trafigura be fine ?

https://www.bloomberg.com/news/articles/2017-09-26...

Traf will be fine

Oct 3, 2017

And is there any other market that you are interested in? Apart from commodities which as you said does not seem that good of a choice now

Oct 4, 2017

How hard do you think it would be to switch from a domestic commodities market to other macro products like fx, rates, or bonds?

For those in gas, you think lng is going to change the nature of gas trading?

I am still new in the industry and while i remain conservatively optimistic, I have yet to see signs that the market will return to its glory days.

Oct 9, 2017

Expect massive changes in 2019 forward once LNG becomes main focal point. I disagree that trading is dying, is it harder? Yes its super super hard these days and consolidation has finally started most places. But on other hand we are seeing assets finally get locked up for 20 plus years in lots of markets which means vol will be coming back. Lots of people are running models from 2008 or even 2014 still and need to move on already. There has been prolly 4 major trades this year that killed or some did well on for natty/power vs in 2012 when literally there was zero vol.

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Sep 25, 2017

How does assets locked up for 20 years increase vol? Seems it would decrease vol, esp since these capital projects are using current forward markets, why wouldn't this risk be reduced by a hedging program already going/gone through the market'

2012 is not a good year to compare nat gas/power vol...the first 6 months were definitely the lowest of the lows..i think henry hub event went to 1.90 that april...

I think if your on the physical side of the business you are fine..
If you are speculating on power or gas prices its an utterly horrible environment. NYMEX has been as range bound as I've ever seen

Oct 9, 2017

Good other side of coin view. You seem to know your stuff so won't respond in detail. But will say take a look at what RBN wrote this week about "basis blowouts". Was comparing 2012 because it was brutal spreads were so tight and you are correct directional price collapsed. As for how vol could increase as assets get locked up its because "infrastructure" is limited and the grid still needs to clear and balance everyday. So while long-term vol is going to be crushed potentially what you may get is short-term vol coming back. You may need to switch pipes going from region A to region B daily soon as the market is losing balancing mechanisms. Also "limited infrastructure" is what caused the madness at Dom-SP this summer.

Again this is not the super fun days...but its not 2012 a year where everyone was sleeping at their desk.

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Jan 6, 2018

.

Jan 6, 2018
marcellus_wallace:

Lots of people are running models from 2008 or even 2014 still and need to move on already.

Why would you need a model in physical commodities trading? Youre not directional in price?

Oct 4, 2017

Thank you Marcellus for the response. It is interesting to see seasoned traders and shops getting killed. I think there were a couple of themes that played out this year and are projected for the next few years which will be cause for vol imo . However, what could the future hold after the next 5 years would be something to take into consideration.

For those who are on the financial side, are there any thoughts about moving to other products? I know moving from one commodity to another is possible but I hope no one is pigeonholed into a sector straight after undergrad.

Oct 10, 2017

This is total bullshit. I've been trading crude oil futures recently....great moves, great intraday volatility...you just have to understand the type of patterns that the market is following. If you research Chaos Theory (the math...not the juju from Jurassic Park..aka, the study of feedback systems) you will see crude oil fitting nicely into the Chaos Theory patterns. While its true that there is less opportunity to be a market maker, there is plenty of opportunity for prop traders who understand how markets move.

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Oct 17, 2017

Anybody know how GS did with their NG trading in the 3rd quarter? Continued losses on same midwest basis trade?

Oct 20, 2017

Bro it was NE basis...Dom is NE

Oct 17, 2017

Yes you're right. But Dom would have strengthened on Rover getting gas to the midwest - it was a Rover bet.

Sep 25, 2017

The head of power trading left recently...

Like I've mentioned in other post...
The title of this thread should read "spec trading is dead" because it 100% is in energy

Oct 10, 2017

this is ridiculous...have you looked at an intraday chart of crude oil futures recently? Great trading environment

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Funniest
Sep 25, 2017

We're not talking about your personal day trading account here...

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Sep 24, 2017

An interesting article on Bloomberg about tough market conditions in Ags.

https://www-bloomberg-com.cdn.ampproject.org/c/s/w...

Oct 21, 2017

OP - whats the latest on RINS / the value of those?

Sep 24, 2017

I don't trade RINS directly but they rallied this week off the news that the EPA wasn't going to be allowed to gut the RFS.

Oct 25, 2017

It's tough going man. This week has been fun in my region.

Making money is much harder. But I still enjoy the phys aspect of it all.

Sep 25, 2017

Socal CG basis ! Who says volatility is dead

Sep 26, 2017

with the ability to take sub $1 Aeco and move it to Cali $$$

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Oct 9, 2017

Shhh its all dead...

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Oct 25, 2017
MeatHead:

Socal CG basis ! Who says volatility is dead

I've been loving it, absolutely and undeniably in the driver's seat there. Physically and basis wise.

Back to the topic, is commodity trading dead? Right now, yes, from an aggregrate level at least in gas. It's dead, it's as dead as it's as been. Will it remain dead?

I'm bullish. Three big reasons-- we never know what to expect, and I'll elaborate on this below. And the second is LNG, this is kind of like reason 1 but a little more transparent. And third is Mexico.

With LNG on the scene, no idea what countries/global merchants(with zero footprint in the US trading atmosphere NG wise), come in and want to play ball. It also add geopolitical risk and brings competition to NA market entirely. Some companies are shaping their LNG stance as we speak.

Mexico, breaking this border I've seen a surplus of companies trying to find some mexico-SW traders and actually shaping up positions, assets to play this. How this drives other NA america gas regions basis(and phys) wise is going to be interesting.

And the third reason, you never know what to expect? What if the Volcker rule goes, what if Dodd Frank goes, what if a massive merger happens, What if we go past Mexico, and down even more south. What if a bank or merchant starts to become a physical player and changes the shape of how things are played(hinting at one big bank becoming more physical every month).

I know some of this sounds unrealistic, but that's exactly what changes positions and causes volatility. Unrealistic stuff coming to fruition.

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Jan 6, 2018
Butterbean:

And the third reason, you never know what to expect? What if the Volcker rule goes, what if Dodd Frank goes, what if a massive merger happens, What if we go past Mexico, and down even more south. What if a bank or merchant starts to become a physical player and changes the shape of how things are played(hinting at one big bank becoming more physical every month).

I see that big banks could take bigger positions in commodities if the Volcker rule/Dodd frank goes but what would the other affects be? Howw would it affect the physical business?

Sorry but what big bank is hinting at becoming more physical?

Dec 20, 2017

very noteworthy comment Butterbean.

What you say is that commodity trading is not static, it's Dynamic.

The situation overseas or the changing behavior of the bank, financial institution (so true what you've hinted) or others traders can entirely impact NA, Europe or Asia. I was here when a trader changed the situation of a pipeline post-10' and it was day and night.

Mexico- most of the Majors, (BP,Exxon) and Traders (Koch...) have hired people focused on the trading and supply of Mex-market and the boutiques like Elbow River, Integral Petroleum S.A who also have an office in Mexico City.

-Traders are condemned to constantly adapt to the harsh conditions of their profession, without right to error in the complex stages of trading, which combine reactivity and understanding of the workings of finance, logistics and of the game.

The rule of the game in this market is that there is an arbitrage until there is no more. So any business model has to start on that premise and plan the downsides in advance.

Sep 27, 2017

You'll see vol pick up when the same happens in rates, equities, etc

Fuck Bernanke and his "courage to act" -- ruined a decade of trading

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Sep 26, 2017

rumor on the street is that Shell is getting out of all trading (gas) not sure if Power and Crude is affected. @marcellus_wallace @monty09 @Butterbean

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Sep 28, 2017
nattyphizz:

rumor on the street is that Shell is getting out of all trading (gas) not sure if Power and Crude is affected. @marcellus_wallace @monty09 @Butterbean

shell is not very large overall in nat gas as years past - been shrinking since 2013. I "sell" them leaving natty

Sep 25, 2017

I sell Shell leaving power over natty all day long.
They have a decent supply/physical books for gas in most regions outside of the NE.
Power, no idea why they are such a massive player in ercot but thats not my market cuz they aint big in anything in the east outside of MISO

Oct 25, 2017

Where did you hear this?

I heard they are condensing it, but not closing it. As in 18 gas traders in West region moving to 6 total. Power 30 to 10.

Hit me up, this is interesting to me.

Jan 6, 2018

[]

Sep 28, 2017
LaNoob:

Why is physical commodities trading becoming harder?

read the whole post again

Dec 20, 2017

Best discuss. on WSO by far since a long-time.
Trading is dead.

Time to come closer to deeper causes and less known dilemmas.

The Glen-vore-figura roll the dices- largely clustered into complex assets with long-term debt positions, a possible explanation on why they weren't positioned in time/space to capitalize despite it was one the most monumental trading year in Energy since Katrina (2005)...

"Commodity Trading is dead" *maybe but *there are also less-known physical traders that are emerging without seeking attention and any name recognition, you just rarely hear about them in the medias.

Jan 6, 2018
Addax:

The Glen-vore-figura roll the dices- largely clustered into complex assets with long-term debt positions, a possible explanation on why they weren't not positioned to capitalize despite it was one the most important year in Energy Trade since Katrina (2005).

What would count as a complex asset? Why do you say "roll the dices".

You cant really gleam this info from reading bloomberg say

Oct 25, 2017

Yes,

Along with that bank I mentioned, there's another bank progressively adding to their physical base too. They moved some analysts and rt power guys to their gas desk recently.

Then, there's Gunvor now coming to play domestic gas trading and have actively recruited some industry vets. Hiring two I work with regularly, and Vitol attempting to poach some too and create a new region desk.

Jan 6, 2018

https://www.bloomberg.com/news/articles/2017-05-21....
"Everything is transparent, everybody knows everything and has access to information," Daniel Jaeggi, the president of Mercuria Energy Group Ltd.

It would seem like things like the internet are hitting the business hard. What do you make of this article????

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Dec 19, 2017

Ever thought of trading crypto assets? Huge volatility right now and is basically the wild west of the FX market. Wish I knew how to day trade.. you could kill it if you already know how to read the markets.

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Oct 25, 2017
diverse_kanga:

Ever thought of trading crypto assets? Huge volatility right now and is basically the wild west of the FX market. Wish I knew how to day trade.. you could kill it if you already know how to read the markets.

I do it for fun. But day trading this, and being a technicals believer would get you raped. It's random and volatile. There's no consistency in this. Charting and any other technical bullshit is off.

I've just put in whatever I felt that one day if I wake up and it's all gone, I'm okay with it. Though, don't get me wrong I check my positions everyday and I'm like, man, I really should get out lol.

Jan 25, 2018

I think its best to invest for the long term in some of the good technologies while they are still cheap and hold on for the ride.

Gotta play the long game here. Digitization id the next revolution and will be changing the worl in the coming years. Block chain I believe will be an important part of it. I feel banking still is pretty far behind when you consider the bleeding edge of technology and hence banks which do have commercial banking along with investment baking will be looking to digitize themselves in the next 3-4 years.

A few days back i read an article on how Kodak is using blockchain technology to prevent plagiarism among photographers. Its technologies like this will will come out in the long term. I am especially hopeful about blockchain in the fintech space and feel owning coins on companies that are bringing real revolution in this area can be highly valuable in the future.

I agree, crypotcyrrencies are still in their nascent stage but once it is developed futher it will be treated like a commodity, maybe.

May 6, 2018

Does anyone want to trade my random number generator? I'll show you a tight bid offer if you guys promise to trade a lot

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Jan 6, 2018

How much is competition from each of the trading houses like Glencore and Mercuria hurting the physical commodity trading business? Some of these firms are relatively young.

Mar 21, 2018

Are you referring to competition against supply shops..? (BP, Shell, P66, Total, etc.)

Jan 6, 2018

Not sure what you mean by a "supply shop". I was refering to just more players trading commodities than say 30 years ago

Jan 6, 2018

Could you move to Natural Resources Banking from commodities trading?

Sep 28, 2017
LaNoob:

Could you move to Natural Resources Banking from commodities trading?

i have seen it happen via MBA programs and maybe 2-4 times directly in my 13 years in the space

Jul 12, 2018

Just read this post. Are the energy markets for trading, specifically ng, still poor?

Sep 5, 2018

I think that the smartest career change is the smooth and easy transition to the farmers market. The arbitrage is amazing, sell side is always exciting, and you can work with some real alternative investments like hand-made soap and wheat blessed by a witch and picked by a hipster.

Oct 1, 2018

I was recently reading some old Texas Monthly mag. articles about international oil traders in the 70s & 80s (IMHO the golden era of commodity traders) and I started to wonder why we do not see many new trading houses/startups like we did in the past? It was very interesting to read the stories of Vitol's founders Detiger & Vietor, John Deuss's Transworld oil and BTW I don't have only oil traders in my mind (Trafigura Glencore's spin-off)

Very interested to hear comments from experiences traders - What is holding you back from starting your own trading house? I think it was much more difficult to raise some capital in 70s or to get a credit line from a bank, PE, etc...

Sep 25, 2017

Seems to me like there have been quite a lot of new houses lately actually. BTG Pactual which became Engelhart, Freepoint, Concord.. Spin-outs like Castleton or IXM... Even Mercuria is not that old of a firm. HF backing seems popular.

That article sounds fascinating, was it paper or do you have a link?

Edit: Found it: https://books.google.com/books?id=yisEAAAAMBAJ&pg=...

Oct 5, 2018

Is this why Chicago went down on the Global Financial Centres index to number 17?

Apparently now San Francisco, Boston, & Los Angeles are all bigger global financial centers as compared to Chicago on the list.

Is it just a fucking shitty list or has a decline in traditional finance and commodity trading led to the decline of it?

Sep 25, 2017

I think this idea that commodity trading is dying is overblown. However the decline of open-pit trading makes Chicago little more than symbolic at this point even though the CME is based there.

Oct 14, 2018

Instead of asking what others have done, you should be asking yourself what you want to do...then figure out how to make that happen.

Oct 19, 2018
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Oct 22, 2018
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