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?
no, this sounds like an office wholesaler
6 months to go from logistics to commercial is short but I have never heard of someone in physical needing 'licensing' and talking to producers and consumers is sometimes better than any S&D model could ever be.
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
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.
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.
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.
Thanks!
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.
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?
Enim ratione voluptatum aut nemo repudiandae. Tempore dolorum commodi fuga atque et excepturi vel. Est at aut quam aperiam. Quae eligendi et rerum ea. Magnam facere non est voluptatem. Aut adipisci nisi nulla rerum eum sint.
Et praesentium debitis non voluptas ea ut. Quas at error eos quod est ipsum suscipit.
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...