Physical Commodities Trainee Traders

Hello WSO ,

Does anyone have any information regarding structured trainee trader programs at physical commodities trading shops?

I know that you are often expected to spend time in ops/scheduling/risk/deals desk etc. in general at the entry-level. For a structured program though, could anyone comment on the steps it often takes to become a trader (required overall knowledge, required/common desks/rotations, tests, length of time/seniority needed, the role of timing or luck etc.) and the likelihood of becoming a trader when on that track. Any examples from specific programs would be great.

Thank you.

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Comments (79)

Mar 30, 2014 - 8:04pm

monty09:

3-6 years to trader and all begin in ops

I was trading 10 months in, but I have been exposed to phys trading since childhood so perhaps had a leg up.

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Jan 11, 2014 - 2:33pm

Curiousbro:

Does anyone ever come from other sectors of the oil industry?

Like someone working upstream in E&P changing to trading.

Not oil, but a buddy of mine recently moved from an ops job at a smelter (purchasing concentrates),to a trading gig at a physical shop.

Jun 10, 2012 - 10:20pm
rayban:
Would scheduling and pricing experience at an upstream company be an ideal background for physical trading?

Depends what company and how actively they give a crap or not. Lots of producers call trading firms say "I want to do X", the trading's arms schedulers do what they want, all they do is click "accept". No these brillant minds I do think will be able to transfer to trading.

Jun 11, 2012 - 1:47am

from the limited amount i've seen / from what i can tell, it really is more about the individual than what specific thing you do.. it's not so much like IBD where there are very very defined tracks and steps to take and then 80% chance of you being successful at becoming an ibanker.. it's a much more nonstandard track.

Jun 11, 2012 - 2:07pm
Tupac:
from the limited amount i've seen / from what i can tell, it really is more about the individual than what specific thing you do.. it's not so much like IBD where there are very very defined tracks and steps to take and then 80% chance of you being successful at becoming an ibanker.. it's a much more nonstandard track.

I'm aware that there is often no standard track. However, I have also heard of junior/trainee trader programs (or something along those lines) and wanted to know whether these programs are designed to ultimately create traders. I.e. do you have a greater chance of becoming a trader if you are part of that type of program (which rotates you through various departments) vs coming in as a "regular" scheduler/risk professional and working your way to a trading role where, as has been previously confirmed, there is no set path. Not a lot of info about these type of programs out there. Thought someone here might have experience with them.

Jun 11, 2012 - 8:39pm

Typically Trader Trainee, Trader Development, etc programs give a step up to the people in them. Basically they are very anal programs done globally or region-wise to keep a bunch of smart people to be the future leaders of the firm. Usually applying to this program is open to everyone in operations and other areas, I have seen instances when someone from a totally different background beat out all the operations people. These programs are not made to make future Jr day-to-day traders but rather future leaders, looking for someone who thinks a specific way and has the whole package.

That all said, there is no guarantees. A scheduler could figure out shit alot faster than some trader trainee dude. Some schedulers will never trade nor should they, since they never learn commercial sensibility. Usually one of rotations of a TDP style program will be operations and scheduling some of the key assets of the firm be it in whatever commodity (aka you are the golden child, so guess what you get the hardest shit and you best not eff up, cause you the golden child, you best learn it quick and master it).

Lastly most of these programs are global which is nice, since if there is no spots on "desk X" there could be a spot in Europe on desk or another office on "desk Y". A scheduler would never see such opportunities.

But I finish lastly, there is no guarantees. Also you will probably be paid less in a TDP style program than a regular scheduler or desk analyst, that is life.

Jun 12, 2012 - 2:15pm
marcellus_wallace:
Typically Trader Trainee, Trader Development, etc programs give a step up to the people in them. Basically they are very anal programs done globally or region-wise to keep a bunch of smart people to be the future leaders of the firm. Usually applying to this program is open to everyone in operations and other areas, I have seen instances when someone from a totally different background beat out all the operations people. These programs are not made to make future Jr day-to-day traders but rather future leaders, looking for someone who thinks a specific way and has the whole package.

That all said, there is no guarantees. A scheduler could figure out shit alot faster than some trader trainee dude. Some schedulers will never trade nor should they, since they never learn commercial sensibility. Usually one of rotations of a TDP style program will be operations and scheduling some of the key assets of the firm be it in whatever commodity (aka you are the golden child, so guess what you get the hardest shit and you best not eff up, cause you the golden child, you best learn it quick and master it).

Lastly most of these programs are global which is nice, since if there is no spots on "desk X" there could be a spot in Europe on desk or another office on "desk Y". A scheduler would never see such opportunities.

But I finish lastly, there is no guarantees. Also you will probably be paid less in a TDP style program than a regular scheduler or desk analyst, that is life.

marcellus, thanks a lot for the insight! It seems from your description of the programs and their aims that the names they use (if they allude to being for future traders) are misleading given that you are expected to be a leader but not necessarily a trader. I'm also surprised at the fact that these programs will generally pay less than other entry-level positions such as scheduling. I would have thought that given that they want to attract and retain the best for these positions, they would pay at least as well if not better than other entry-level positions (not necessarily IB analyst salary, but I don't get the impression that schedulers make a ton of cash).

You brought up the desk analyst position. I've been wondering how necessary/common it is to have experience as a desk/research analyst before becoming a trader. I would expect it to be pretty much a mandatory step on the path to becoming a trader but it seems that no one really mentions this as part of the physical trader path. Is it not necessary or is it so obvious that people only tend to highlight the operational roles with the expectation that you will know you need to transition through some sort of market analysis role as well? Thanks again for all the feedback!

Jun 12, 2012 - 8:07am
GoodBread:
How can you relate a finance background to ops/scheduling? I'm doing an Msc. in Finance and while I've read Oil 101, very little in my classes seems directly relevant to physical trading and so I'm not sure what I'm selling other than wanting the job.

Im in the same position as you Goodbread. Maybe try to link your interest of commodities via your thesis topic ??My thesis is somehow related to commodities (carbon trading) and I had previous work experience in industrial sectors (cement), but it also looks like a long shot to see how my master's degree truly reflect any relevance to physical commodities trading.

Jun 12, 2012 - 8:26am
16rl:
GoodBread:
How can you relate a finance background to ops/scheduling? I'm doing an Msc. in Finance and while I've read Oil 101, very little in my classes seems directly relevant to physical trading and so I'm not sure what I'm selling other than wanting the job.

Im in the same position as you Goodbread. Maybe try to link your interest of commodities via your thesis topic ??My thesis is somehow related to commodities (carbon trading) and I had previous work experience in industrial sectors (cement), but it also looks like a long shot to see how my master's degree truly reflect any relevance to physical commodities trading.

im currently doing my masters, specializing in finance, and left a year of scheduling into finance... what sold it to the phys shop for me was just having a business background. scheduling jobs are entry level so (in my case anyway) i just had to show that i was smart, could learn/work hard, and could talk... alot of counterparty interaction

mentioning experience in trading (PA) might help them see that you've put in the time to want it long term.. but this just goes back to Goodbread's comment 'I'm not sure what I'm selling other than wanting the job."

experience that might be more worth mentioning would be any experience that involves meeting deadlines, dealing with counter-parties, fixing random unforseen problems, and above average excel competency ... this kinda just goes along with the usual "attention to detail, react in high pressure environment" crap

Jun 12, 2012 - 6:45pm
GoodBread:
How can you relate a finance background to ops/scheduling? I'm doing an Msc. in Finance and while I've read Oil 101, very little in my classes seems directly relevant to physical trading and so I'm not sure what I'm selling other than wanting the job.

You cannot. It shows you have interest and are not a total dumbass (one would hope). Also one would hope all those fancy classes and degrees teaches to think on micro and macro level. One would hope all those economics classes teaches you how to indentify supply/demand trends. One would hope all those math classes allows you to quickly identify when something does make sense, to do math on your feet etc...

The best way I could describe is watch "Trader doc" on PTJ. If you cannot relate what you learned/learning to what PTJ does in that film to put on his large positions and trades, you are wasting your money.

I will add one last thing. The reason I say PTJ doc. Is because most of commodity tradings best trades do not need a rocket scientist, this is not rates/options/index shit/hft/cds/mbs all that other stuff you need years of books for. This is basic supply/demand, its Econ 101. But being able to build on those is the key part.

Jun 12, 2012 - 6:32pm

Maybe I got a bit ahead of the curve. Every firm wants every hire to be a leader or star, reality is few people are and most are just foot soliders. Getting a star is hard, you can either go tell monty to find you one and pay helluva lot or you can groom your own. These programs essentially are to groom those. Same as 500 leadership program, but as I mentioned not everyone is a guarantee and nothing is guaranteed this is just the overall idea to have such a program (i.e. how HR sold the dream).

Why you get paid less? Trading firms pay for results not potential. Hiring a bunch of smart dudes from top schools and good background just means they have potential. Those top schedulers/desk analysts/etc are in the trenches day in and day out they have proved themselves, you have not you get the basic till you do so. If you need to be paid more to be retained/attracted and could not see the bigger picture or future, you probably will never be the star they want you to be. I.e. you are the golden child one day you get a chance to advance faster and learn more than others, just don't eff it up. The money will come and then you can call the shots when you deleiver results.

Depends on firm/desk/product. Typically if there is a desk analyst position it should be the last placement in a trainee/rotational program. But again depends on the firm.

Jun 13, 2012 - 3:14pm
marcellus_wallace:
Maybe I got a bit ahead of the curve. Every firm wants every hire to be a leader or star, reality is few people are and most are just foot soliders. Getting a star is hard, you can either go tell monty to find you one and pay helluva lot or you can groom your own. These programs essentially are to groom those. Same as 500 leadership program, but as I mentioned not everyone is a guarantee and nothing is guaranteed this is just the overall idea to have such a program (i.e. how HR sold the dream).

Why you get paid less? Trading firms pay for results not potential. Hiring a bunch of smart dudes from top schools and good background just means they have potential. Those top schedulers/desk analysts/etc are in the trenches day in and day out they have proved themselves, you have not you get the basic till you do so. If you need to be paid more to be retained/attracted and could not see the bigger picture or future, you probably will never be the star they want you to be. I.e. you are the golden child one day you get a chance to advance faster and learn more than others, just don't eff it up. The money will come and then you can call the shots when you deleiver results.

Depends on firm/desk/product. Typically if there is a desk analyst position it should be the last placement in a trainee/rotational program. But again depends on the firm.

Thanks again for you input. I think that regarding the pay, we might be talking about different comparisons. I meant to compare a brand new graduate/trainee trader vs a brand new scheduler/ops employee, neither of whom have previously been "in the trenches day in and day out". Regardless, I think your assessment makes sense if we're comparing a seasoned scheduler vs a recent grad.

Anyway, it seems like the bottom line from both you and monty is that an average scheduler and a star "trainee trader" have equal shots at becoming an actual trader. I initially would've thought that coming up through a structured trainee program would be seen more favorably and give you less of an uphill battle, all else equal, just as coming from a target would on average give you the edge vs. a non-target for certain selective jobs.

monty recommended the scheduler job for an entry-level position on the road to becoming a trader. Is there consensus on this in the industry or does it depend on the company and its trading style? I've heard of risk and trader assistant positions being attractive as well.

Jun 13, 2012 - 8:40am

yea the shop i was at was the same - pure physical with only a few financial traders to hedge

i would say learn what you can there, keep your resume up to date, and look around

Aug 2, 2012 - 3:26pm

Imperialian,

I'm looking toward physical trading and it's interesting to see that you don't enjoy it as much as you thought you would. I'd be interested to hear from anyone else who worked on the physical side and didn't enjoy the experience. I come from a financial commodities trading background and hadn't really considered the different environment. Flip side, i know from talking with Monty09, that the power markets are about as volatile as they come. So, i'm interested in how volatile crude or gas markets would impact physical trading, i would think that would make things a bit more interesting, but maybe not.

davel5
Aug 3, 2012 - 10:15am

hmm well, after some time since my last post, I think I am doing ok.

Market is very volatile nowadays. Last few days was very bearish with Fed and ECB not doing anything, futures went down and I recommended to go short. Today non farm pay roll came out with good numbers and it all went up again and my stop loss was triggered.

In a way, paper trading has its bad points as well and I feel its like gambling. Sure you could take about trends etc, but placing bets before a non farm payroll report, which could go either way, if that is not gambling then I don't know what that is.

That is why physical shops can survive down turns more than banks and hedge funds in my opinion. Sure, razor thing margins by buying from supplier and then selling to clients is boring business but at least you won't go bust.

So really depends actually on what you want. For me, I like the excitment of paper trading but crave the stability of boring physical trading.

Aug 3, 2012 - 10:37am

I'm sorry but if that is really your opinion, you are not doing OK. I really wish I knew where you were working because they are clearly doing a HORRIBLE job of teaching you anything about the physical side. I don't have nearly enough patience or care enough to write a detailed post for you but I would highly recommend you try to learn more about physical trading. I can tell you for one thing that it is atleast as exciting as paper.

Aug 2, 2012 - 10:40pm

I'll be honest -- when I first started as a scheduler -- I dreaded it..but I was talking to the traders every day -- asking me where the holes are..where's the demand..where do we need to buy..what's our mark? All of these are very, very important questions -- and you better not give them a dumbfounded look -- step up and prove to them that you know what you're talking about. At the end of the day, I enjoyed it thoroughly. You learn so much from the traders that as long as you schedule efficiently, you'll continue to learn via your interaction with the traders. When most people find out what physical trading really is, they lose interest. However, it's extremely lucrative and challenging in my opinion.

Aug 3, 2012 - 11:33am

Somuchvienna..I'd be happy to hear about your thoughts regarding physical trading (when you have time). Sounds like Imperialian is just new to the physical side of things, so I'm sure his opinion will develop/change over time.

That said, from people I've spoken to, most would tend to agree with you Somuchvienna and I pretty sure paper trading firms look highly on experienced phy traders because of the deep market insight they have. Obviously physical commodities and futures/options are closely linked, so I can't imagine physical being boring and I'm sure a trader can get blown out by making bad decisions, just like in paper. Also, try getting financing to complete transactions in 2009-2011, probably not simple.

To the point about gambling prior to big numbers, I understand what Imperialian means. However, I think it's different than gambling in that you have an expectation of a certain outcome, based on market fundamentals, and then hope that your assumptions are correct. I think its closer to card counting than flipping a quarter.

davel5
Aug 4, 2012 - 4:05pm

All trading is a form of gambling, if you did not learn this during your internship not sure what to say...

When I say trading I mean true trading, not some utility optimizing an asset, in those cases they cannot ever or are lowering costs, trading consists of the risk/reward and a possible negative result.

I have written in depth before about the whole physical vs paper discussion. As usual I say it majorly matters on the commodity, the firm and the strategy.

Mar 27, 2014 - 8:28am

much better li than financial trading.

"most of the money comes from the razor thin premiums from sellers to buyers, but profits get massive with enough volume. And you also need to source for alot of clients in this biz and handle their shipping, warehouse issues.

Apr 7, 2014 - 5:43am

16rl:

I love how this random SonnyZH comes crashing into this thread and basically tells three major WSO contributors that actually made it from ops to trading how shit is done.

Hahahahahaha when did I say anything about how shit is done? Uhm... since when does being a WSO contributor make you the be all? LOL! As if I were speaking to Pinky Green and Rich here.

Cry in here boy: [______]

[quote]The HBS guys have MAD SWAGGER. They frequently wear their class jackets to boston bars, strutting and acting like they own the joint. They just ooze success, confidence, swagger, basically attributes of alpha males.[/quote]
Apr 7, 2014 - 11:18pm

Also, at my current firm, a girl who started working a month prior to me as the trade analyst--her father is the senior VP of a big trading firm here in Houston. Think along the lines of EDF, he's worked at Centaurus, etc., and even with the time I spent with him(more of which I intend to do).

With current FERC regulations as is, the volatility of the market, and the low appetite of risk for certain companies(think utilities), a lot of the market for traders is designated for a conservative, proven group.

These swing for the fence traders go to the the houses-- Trafigua, Vitol, Glencore. But to get there, and be credible you got to have a hell of a background- decade worth of trading minimum with a great book record.

Apr 15, 2014 - 7:02pm

Butterbean:

Also, at my current firm, a girl who started working a month prior to me as the trade analyst--her father is the senior VP of a big trading firm here in Houston. Think along the lines of EDF, he's worked at Centaurus, etc., and even with the time I spent with him(more of which I intend to do).

With current FERC regulations as is, the volatility of the market, and the low appetite of risk for certain companies(think utilities), a lot of the market for traders is designated for a conservative, proven group.

These swing for the fence traders go to the the houses-- Trafigua, Vitol, Glencore. But to get there, and be credible you got to have a hell of a background- decade worth of trading minimum with a great book record.

You are talking about Jeff Welch and think his kids went to A&M which is a huge leg up in Houston

Apr 7, 2014 - 11:33pm

I don't know if we're talking about the same thing here, but I work for a small energies fund so I'll say what my progression was. I checked trades for a while, learned about options the hard way (not many people helped me out and showed me, I just kind of had my feet to the fire). So yeah, from my last statement, I really can't tell you about trainee programs. I did that for some time and then finally got backed to trade so now that's what I do. Also in clerking (at least at my workplace), everyone reconciles their group's positions which is basically making sure everything lines up such as mark to market, the positions they have on, etc, so they're not hedging or trading on the wrong current position. I was told to read Options Pricing and Volatility by Natenberg (standard reading among all the players I know). In crude, some good spreads to look at are Dec red dec (front dec and next year dec), june-dec and dec, june. There's also the cracks which are the spreads between the refined product and crude like the heat crack (spread between heating oil and crude), the gas crack (spread between unleaded gas and crude). In nat gas, you have the shoulder months which are H and J (march april spread) and V and X (october-november or "ock novvie" as people say). I don't know if calendar spreads are what your guys are looking at but yeah, thought I'd throw in what I could. Btw, talking about big groups like you mentioned, you may find that there's more upside at small market making groups because of the split you get. Funds typically give you a salary and a bonus which is great, but if you're consistently making money, probably better to stick with small groups. I'm thinking of maybe trying to get in with a small prop desk that's pretty reputable (its name has been on this forum several times), but it would be to learn and probably not to stay.

Apr 23, 2014 - 4:26pm

GoodBread:

I don't think monty09 is talking about ag traders here, just energy, and mostly crude and products at that.

agree - all the majors are going to have a decent size biofuels desk and Vitol/Glencore may have 1 person doing that for them against 4 doing gasoline. Play the numbers here - more product seats than ag's - more so at a Vitol/Glencore

sheer outright AG's - keep to the ABCD model

Apr 24, 2014 - 11:24am

I don't know about physical side, but I can tell you the financial side is looking bleak. A lot of guys have left and the number of guys playing are going down. I don't think anyone can say that this is a growing industry. Not to say there's no money to be made, but from what I've been told by numerous colleagues at desks and from what I've seen, it doesn't seem so great compared with other industries. That's why I'm looking to go physical. Again, not that it totally sucks or it's a horrible thing to get into, it's just that from what I'm seeing it doesn't seem competitive with other industries and from what I've heard, the money floating around is less than it once was. Of course there has to be SOME people out there making money, but the odds are highly stacked against almost everyone. Look at the returns of hedge funds in the past few years

Apr 24, 2014 - 1:39pm

jargon223:

I don't know about physical side, but I can tell you the financial side is looking bleak. A lot of guys have left and the number of guys playing are going down. I don't think anyone can say that this is a growing industry. Not to say there's no money to be made, but from what I've been told by numerous colleagues at desks and from what I've seen, it doesn't seem so great compared with other industries. That's why I'm looking to go physical. Again, not that it totally sucks or it's a horrible thing to get into, it's just that from what I'm seeing it doesn't seem competitive with other industries and from what I've heard, the money floating around is less than it once was. Of course there has to be SOME people out there making money, but the odds are highly stacked against almost everyone. Look at the returns of hedge funds in the past few years

agree

Apr 25, 2014 - 12:00am

This thread is all over the place.

I do agree, fair statement to say that the industry is not in growth mode. But I can say the exact same about interest rate trading, equity options and other sectors. Having less seats at the table is not always a bad thing, just depends if you really enjoy what you are doing or not. I do not think commodities and energy in particular will be anywhere near a "dead-end" for the next decade, but it will not be an easy path either.

As for the whole Traf/Glencore/Vitol etc stuff and how it compares to banks. As I have mentioned before the regulations and changes going on in the industry are wide spread and banks are just most impacted by them right now. An article in reuters recently points out that the study on commodity trading firms in general is bringing to light who exactly these firms are and how big they are. Ironically the study was pushed by the industry to explain why losing banks would hurt in the long-run for consumers and now these firms may be forced to more clearly explain publicly what happens in the dark shadows.

Apr 24, 2014 - 11:56am

I'm currently looking for internships at commodities firms (yes I know it's late, but I'm hoping I can maybe get something unpaid for the summer). Not all of these firms list an email, but some will list a phone number. What's the best time to cold call (eastern time zone) and if I have the option to be directed to HR or the Trading desk where should I go? I have a short 3 sentence pitch ready about who I am (school, gpa) and what I want (a paid or unpaid internship) that's direct and to the point.

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