Do Physical Traders typically obtain licensing?

I was offered a job at a shop but I thought it might be a red flag that the company does not require traders to obtain licensure. They also allow you to step into a commercial role after just 6 months in logistics. The company is a market maker for a niche commodity where futures have an open interest of about 200 contracts. Also, I find it strange that the company does not model the commodity to make predictions where the price is going. Rather, they go out into the market and talk to their mills and customers to get a general consensus while factoring in economic indicators.

My question essentially boils down to this, does this sound like a good shop? and do most physical traders have licenses?

WSO Elite Modeling Package

  • 6 courses to mastery: Excel, Financial Statement, LBO, M&A, Valuation and DCF
  • Elite instructors from top BB investment banks and private equity megafunds
  • Includes Company DB + Video Library Access (1 year)

Comments (10)

  • Analyst 1 in S&T - Other
Dec 19, 2019 - 8:40pm

Work at a trading house, no one here has any "licensing" and I'd say there's very little if any modeling done by the research department. people look at historical supply and demand numbers and stuff, but most of the market view comes from talking to people

Dec 20, 2019 - 7:47pm

Agree with this guy. Most commodity trading houses don't require licenses to trade unless you are going into a futures broker role. Most all information comes from your suppliers and customers in your local area for physical commodity trading. Data from Bloomberg and CME won't give you an edge, especially with a small, niche commodity.

Dec 20, 2019 - 4:31am

Sounds okay. Mind you a commercial role might not mean you will be a 'Trader'. You could be reviewing commercial contracts and post fixture activities on behalf of the desk, working with chartering and operations to minimize exposures and support trade execution.

Trading companies have all different titles being; Trading assistant, trading operator, jnr trader, assistant trader etc.

Either way its a good base for development into a trader IMHO.

Learn More

300+ video lessons across 6 modeling courses taught by elite practitioners at the top investment banks and private equity funds -- Excel Modeling -- Financial Statement Modeling -- M&A Modeling -- LBO Modeling -- DCF and Valuation Modeling -- ALL INCLUDED + 2 Huge Bonuses.

Learn more
Most Helpful
Dec 20, 2019 - 12:27pm

Sounds legit to me. When you are talking about a niche commodity there is not the data available that there is in other assets (equities, debt, commodities like oil, etc.) so it is not surprising that they aren't building out models for pricing. Even the data that is published can be suspect at best.

In a niche market where you own assets that are processing commodities your assets are going to provide more info to you than anything you read on the wires. The companies assets are part of the demand, the companies buying decisions and prices paid are part of the market prices. The companies customers buying behavior is part of the demand for the finished product. Given the company is subject to the same market conditions as everyone else, this proprietary knowledge provides more insight than anything else can about the industry as a whole. If your mill is shut down for two days next week because of slow order flow around Christmas and the New Year then your competitors are probably also facing something similar. This info is much more helpful for establishing your pricing than any S&D model you can build using data scraped from Bloomberg.

For the licensing question - I have never met someone that works in the physical space that has a license of any kind.

To address the concern about the quick progression to "trader" - I would see that as a positive. It is a faster route to you being treated as something other than a cost center. At companies that process niche commodities the route is usually much quicker for a couple reasons, in my opinion:

1) The volumes you are dealing with are much smaller, meaning there is less of a chance for you to screw something up that really matters. There is a difference between buying a cargo of crude worth tens of millions of dollars and buying a truck load of something worth 10 grand and 2) The overall margins of the business are a lot less so the company can't keep as many support staff around the help the trader. Meaning as trader you will be expected to enter contracts, help with logistics, talk to settlements, etc. More work and less pay compared to trading something like oil means there is more turnover usually. People will trade those commodities at the beginning of their careers but then they will move onto something else or switch roles completely. This keeps seats open for the new guys in the industry.

Last thing, I think learning the trading side on something small like you are talking about can be very valuable. I thought I knew physical trading until I got put on a desk trading a niche product that didn't have any hedgable futures and was extremely volatile. This really taught me about physical arbs and how to manage a book in a carry/inverse. These are the cornerstone of trading physical commodities and if you are good at what you do then this can provide a very good jumping off point for you to move to something a bit larger down the road.

Dec 21, 2019 - 8:51am

I thought I knew physical trading until I got put on a desk trading a niche product that didn't have any hedgable futures and was extremely volatile. This really taught me about physical arbs and how to manage a book in a carry/inverse.

I am an interning in operations at a trade shop and only been here for 1 week. I have a few questions which I hope you can provide some guidance to if you don't mind.
  1. How different is managing a book in a carry/inverse different to say what a typical oil/grain trader manages a book?
  2. Would you still be basis trading similar to oil/grain trader does?
  3. If a product is a niche commodity without futures and price is volatile, wouldn't the strategy be limiting and restrictive? Restrictive because it could be impossible to take long or short position in the market because you're purely speculating/gambling?
  4. Possible if you could explain how trading a niche product really taught you about physical arbs?


Dec 20, 2019 - 7:38pm

Lumber trader guy is back posting under a new account. No answers change from your previous posts. Glad I spent my time writing detailed answers to your questions.

  • 3
Dec 20, 2019 - 7:49pm

Lol I thought it sounded familiar. OP in case this is somebody new, for less liquid products it makes sense to not do "modeling" and do more fundamental analysis by going straight to the sources of folks buying and selling. Would you trust predictions from a model based on a futures contract that barely trades or the people who actually are involved in the business?

Dec 24, 2019 - 4:48pm

Voluptatem molestiae assumenda repudiandae aut voluptatibus minus. Adipisci qui sapiente amet numquam aliquam explicabo. Vitae laborum nam repellendus ut non debitis.

Animi provident qui nam autem enim. Voluptas minima cumque odio voluptatibus quas aliquid aliquid.

Quo distinctio cumque est similique enim ipsum corrupti modi. Sit voluptatum minima odio necessitatibus quia dolorem tempora dolore. Qui adipisci voluptatem qui voluptatibus nesciunt. Quaerat nemo neque asperiores at esse.

If the glove don't fit, you must acquit!
Start Discussion

Total Avg Compensation

September 2021 Investment Banking

  • Director/MD (10) $853
  • Vice President (38) $367
  • Associates (218) $232
  • 2nd Year Analyst (130) $153
  • 3rd+ Year Analyst (30) $147
  • Intern/Summer Associate (102) $144
  • 1st Year Analyst (478) $135
  • Intern/Summer Analyst (375) $82