Commodity Trading: Physical Vs Paper
I am interested in energy commodities, and had worked in a physical shop, would love to learn more about the paper side as well, what are some of the challenges the paper traders encounter that physical don't?
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curious as well
from what i've seen the paper side is more trading spreads, trading rates, etc... whereas with physical you are generally buying one grade of crude in one spot and selling it in another spot, or blending it, or storing it... so really it's just different strategies from what i've seen. not to say there aren't identical strategies in each, but in all of those situations (basically just long that product) a physical trader would probably come across more issues, such as storage, cost of storage, location of storage, etc, etc... whereas a paper trader might face issues more related to exchanges/margin/etc..
but i don't actually know, im talking out of my ass
edit: i know you said commodities, but used crude as an example
Not sure what your question means, you worked at a physical shop trading energy but did not encounter any swaps or paper? Also with D-F 2.5 months away no one has any real idea what the new rules really look like, one thing is clear you will see a lot less trading of prompt and spot paper markets, even if they exist.
In energy the major issue a paper trader has is one not being able to get firsthand information in the spot market, without a physical asset/relationship/prescence you do not know the details behind the #s, for instance I could see if load goes down from X to Y, but without the ability to talk to that utility or know when they do not call, cannot totally 100% confirm why load went down.
The other issue is not being able to trade on reality, you either need to clear your paper position once we approach spot, since well you cant trade physical. Or you take some half assed version of the daily spot market. So let's say you put on a bull spread, buy point X, sell point Y. Some assclown could defend that position for months till we hit the spot market, even though you are right you may never see it move till we hit the physical reality. Or you may get a daily avg at point X, so you think X should go from $1 to $4 let's say. 50% of the market may trade at $1.20, while 50% trades at $5, guess what as a paper guy you get the avg, the physical dude who has the same view as you could get the $5.
Now the above also plays as advantage to you, since you could possibly defend and push your position and ignore reality at times, but I am not gonna get into all that it is similar to what option and bond folks do.
Hope this helps...
sorry for digging up this post, would like to hear more opinions
Physical vs Financial - Compensation difference (Originally Posted: 03/30/2009)
What is the compensation difference between a physical trader and a financial trader in the energy markets? I am guessing that financial pays more but assuming you are a "good" physical trader, how does that compare to a "good" financial trader?
Financial traders tend to have a much higher all-in comp, but remember that most fin traders put in significant time trading physical. I have yet to meet someone who jumped directly into financial trading... traders have to understand the supply/demand dynamics of the product before they trade financial.
powertime... are you active in the power markets? If so, shoot me a pm.
I think you have to also put in the factor of skill set as not every phy trader is good as not every fin trader is good. Also factor in the type of shop as some shops allow their traders to have a higer VaR then others.
Physical vs Financial - Oil major (Originally Posted: 06/19/2013)
I'm currently at an oil major. I will have the chance to direct my career towards financial or physical trading. Have met with a few traders and some common themes have surfaced, namely that physical traders at oil companies get paid more than financial traders (as a gross over-generalization) because they move production (which is the main business) and get paid for very specific knowledge base. It's a grind because it's mostly dealing with logistics and operational problems.
Financial guys get paid well but have stricter limits and is more ancilliary to the business as they do the hedging and only then run small spec books on the side. It's easier to blow up whereas physical guys' performance is closely correlated with a company's asset base (storage, transportation, etc). Might not be like this at every company, but it seems that physical guys have a better overall risk / reward profile.
Curious to hear from others how the compensation structure might be different at a Glencore type place vs a hedge fund / BB vs an oil major. When does it makes sense to aim for physical and when does it make sense to be focused on paper trading? It seems physical is all the rage these days (my peers are mostly gunning for physical seats, and financial side is largely an after thought).
My interest lies on the paper side but my expectations on potential upsides have been lowered quit substantially. I'd like to see what other people's experiences have been on this. Any thoughts?
Imo, your best bet is to stick to your employer's core specialty. The majors or Glencore/Vitol may can most of their paper team in a crisis but they can't exactly shut down the whole physical side. At a bank of possibly HF, physical assets are a way to get better info for paper traders. If regulators show up, the physical team will most likely be gone before paper market-makers. Just a thought.
This is all relative. A Glencore trader can make 7-8 digits in a year, but just like a hedge fund trader if they perform well. What interests you? Personally, I could care less about the logistical side of the business. I'm a macro guy, I trade paper.
To follow up on this. It seems to be location dependent. In calgary there seems to be much less financial presence but in NYC or London or even TO you would have larger shops dealing in paper. The difficulty in the decision is that longer term it's a call on whether you stay in the city or not. Cgy seems to be dominated by physical and the pay reflects that. I'd love to hear the other side of the argument, I just haven't met a lot of financial traders and those I have met don't run as large spec books.
Which position is the best in commodities crude oil trading: physical or paper? (Originally Posted: 07/20/2014)
ABOUT ME:
CRUDE OIL PHYSICAL/PAPER TRADING JOB QUESTIONS:
Notice: please answer only if you do know about these positions. Keep the numerated frame for more clarity.
NB: If you're interested by my profile and want to get my CV, PM me. Do not hesitate. I'll be very interested to answer your questions about my profile. I am going to apply for one of these positions (or both) this week.
Please, I'd like to contact these members by PM:
• Dr.Shakalu /user/112546 • Urban Guerrilla /user/25647 • monty09 /user/3636
I read their threads/posts with particular attention and would like them to help me getting my job in commodity trading (physical or paper) by answering my questions.
Could you PM them for me? I do not have enough "bananas" for... Or please give me "bananas" to allow me to contact them.
Thanks!
Nobody?
Try mentioned (eg @Brennos) to draw their attention.
But you should trim back your questions. Like most human beings, they are less likely to want to answer 18 questions in details or even engage with someone who posts that many questions. They may be willing to give helpful advice, but not have to answer an exam-like barrage of questions which aren't simple yes/no/one line answers.
You know you should probably post your question as: I have a lot of questions about Y is there anyone who works in X space, I would love to pick your brain about them if you have the time. Then again maybe someone will post 18 separate paragraphs to answer your questions.
And don't overestimate your "deep understanding of crude oil market"
Once you have many years of experience, then you can say you have a "deep understanding" of something. I've been on the paper side for 2 years and the only thing I have a deep understanding of is the fact that I don't have an understanding.
"I am the wisest man alive, for I know one thing, and that is that I know nothing." - Socrates
Hello,
Yes you're both right I shouldn't say "deep understanding" but "good understanding" despite the fact that I study this market everyday since 2009. I know I still have a lot to learn!
If people do not want to answer all questions, no problem! They can just answer few questions!
I just ask them to keep the numbering in order that the thread stays clear.
Thanks for the advice, I quote them!
@"Dr. Shakalu" @"Urban Guerrilla" @"monty09"
Please could you respond (maybe just a part!) to my questions at the top of this topic? Thanks!
You have a deep understanding of this market yet you've never traded a single contract or barrel in your life?
How many US SnD's have you done? What is your refinery model saying about NW.E margins? Is the NYH to ARA gasoline arb open? Are Asians bidding for 40's again? When did VLO last lift a distressed cargo into P3?
What a ridiculous list of questions you pose and what a conceited introduction you make.
Because I'm a charitable person I'll answer a few of your questions. Actually, I wont. I just read the first 10 and they are all inane/googleable.
Calm down "dh". I already corrected the "deep" by "good" because, for a beginner, I think I have a pretty good understanding. There's only one Ms in France teaching energy trading (I did another one, unfortunately) so I consider most french applicants do not have any idea of Energy market. Then I think I am in a pretty good position because I learn it since 2009. It's obvious that I don't know Energy market as well as a Senior Trader!
Well, I finally have just one question:
I heard physical trading requires to start from the bottom with a Compliance and then Scheduler position to get enough background to become Junior Trader and then Senior Trader. Is it true? How much time to entry a trading role? Is it similar for all trading houses?
Do some searching and you will find the replies to every question you posted. Being resourceful is a big edge in energy trading
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