How to become a physical commodity trader?
Hi all, I'm currently a student about to apply to university for undergrad and I've had a strong interest in the physical commodity trading industry for a couple of years now and would like some advice on how to get there.
Ideally I would like to work for trading houses like Glencore, Trafiguera and the likes so in your opinion, which is the best path there? Can you apply straight out of university or is some experience necessary and if so, what sort would be best.
Thank you in advance.
It is definitely possible to break into the industry straight from undergrad. Most trade houses have graduate programs (I have seen them at Vitol, Glencore, Trafi, and Mercuria) and the large oil companies do as well if you want to go into oil/gas trading (Shell, BP, Phillips 66, and Statoil).
If you want to get into trading I would major in something quantitative such as economics, mathematics, or some type of engineering discipline. Employers want to see that you are smart and comfortable working with numbers. As for breaking in, take an internship in any related field whatsoever your first summer and work from there. Anything remotely related to the trading industry will be a good first step. This means assistant to the assistant scheduler, coffee bagger, it doesn't matter.
Thanks for the info. Also wanted to ask if you think it is worth doing a masters in commodity trading after a bachelor. There's one on offer at University of Geneva so I thought this would also position me strategically as a lot of the trading houses are based in and around Geneva
If you end up not breaking in after undergrad then yeah, getting a masters would be a smart move. But if you can break in straight from undergrad there is really no point in getting the master's degree. Trading is not like banking. People do not care about your academic pedigree nearly as much as they care about your knowledge of the industry.
Having said that, if you enjoy school and the Geneva area then the masters wouldn't be a bad idea because it is one of those things that can't hurt to get.
Hello, I have an UG degree in Computer Science and am now doing a Masters in Financial Markets.
I read that futures are the best products to learn about trading. Given the commodity market has not been doing well the last couple of years what would be your opinion about future prospects of trading in this line?
I am not sure what you mean by "I read that futures are the best products to learn about trading." If you want to learn commodity trading then a physical desk is the place to start. Actually learning how products flow and the physical markets move will help tremendously when trading the futures on those markets.
I think just like anything the volatility will return. Markets tend to be cyclical.
I'm an agriculture trader at a physical trading firm from a non-target school. One way to break into agriculture in particular is to be willing to relocate to rural america and work as a commodity merchant at an asset (grain elevator, ethanol plant, etc). Most of the large physical agriculture firms are always looking for people to fill these roles and they can eventually develop into a large trading role. But be prepared to spend 2-3 years in rural america as you develop your understanding of markets.
Rural America... Or rural West Africa, Indonesia, South America, or other in-the-middle-of nowhere places, depending on the product you're gonna be trading.
Having said that, that very time at "origin" is likely gonna be the best investment in your physical trading career ever, since you'll understand the product supply chain from the start. And that IS very valuable in the markets.
So after a few months or years at origin you'll certainly will have gained a lot of value for any trading house, or buyer/consumer of the commodity.
Further to this, I feel like this becomes a club. The engineer and on site guys I know love nothing more than reminiscing about things they probably never did (climbing inside reactors during turnarounds, bringing home un-denatured ethanol, etc.).
Omaha NE and Wichita KS for the win!
I looked at this and worked at a small trading house for a bit. Ultimately I wasn't sure how the hell I was going to get a spot at Glencore anytime soon so I moved to tech sales.
But the most common is starting as a scheduler then moving into a trading role as they become available.
Best thing to do for yourself is securing any type of internship In a commodity trading house. OPS, risk and optimisation are all good areas. You will impress people if you come into an interview and know about the physically processes for the commodity you interview for, so if you are interested in the gas market then know how gas is stored, delivered, what are the major hubs, how risk is hedged etc. In short - pick up a book.
After school if you want to get into trading, scheduling is only a good place to start in a small shop. It is extremely hard to move from scheduling to trading in the big name shops - for them it's a fixed role, and for every trader opening there are 100 people internally who want the job. Big or small, analyst roles are always a good place to start. You work closely with the traders and get to learn about the markets and about hedging.
On the above I think it will vary depending on the shop. I see analyst roles treated as a sort of "bench" at the shops I have been at. If an analyst makes a mistake it is unlikely to cause an issue that is actually attributable to the analysts mistake, the same is not true for ops or even risk where mistakes cost actual money. This may be different in products like gas and power where the analysts play a more active role and aren't just building reports that are ultimately warehoused within what the trader is accountable for pursuant to his/her view on the market. In support of your point, it's fairly easy to replace a good analyst and marginally more difficult to replace a good ops person so the shop doesn't factor in as large as a switching cost if looking at moving an analyst. I am biased here as I have an ops background but, within my team, I take ops guys opinions far, far, far more seriously than I take the tools/insights of the analysts. Do you have the opposite view? Interested to hear others thoughts on this as well.
Everyone has their own purpose/value and I wouldn't say anyone is above anyone else. Will say I do agree though...you mess up a nom when gas is trading $10+ and you're gonna learn real quick never to do that again vs. "advising" a trader as an analyst what he "could" do while yes you're gonna look like an idiot and probably still get chewed out, it is ultimately the trader making the final decision. In ops you are the one inputting things and mistakes can and will be attributable to the decisions you made and the actions you took.
I actually agree with you there, especially on the fact that it depends on the shop.
I'm in the power markets myself but constantly hear about the big role ops guys play in other commodities, and I can see why. Obviously - how would you trade a commodity around the globe if you don't even understand the basics of how it's delivered? You need these skills before trading physical. In power we don't actually have to transport anything. From what I heard (From people who work there) in the big name shops the power/gas schedulers are more isolated from the traders with little opportunity to move. In a small shop the chances are better for schedulers, since the job is an easy transition to intraday trading.
We have a separate analytics team that does all our models - this is definetly not a great way into trading, it doesn't give you the skills needs and you learn nothing new about the markets, so I agree with you there. I dont use half the stuff they produce either. I do on the other hand work with an analyst who is directly on my desk and is responsible for risk, helping with the hedging strategy, figuring out what the competition is doing and doing statistical analysis for us - this is as good as it gets for learning to trade without actually trading. All the traders value his opinion. In that sense my advice to people applying for a trading analyst job would be to judge it based on these responsibilities. But in all honesty - Do anything that gets you a foot in the door.... beggars can't be choosers.
The conclusion from this? There's a hundred different flavours of ice cream and you'll get a different 10 of them depending on where you go.
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