What are some of the differences between physical and paper energy trading?

EQ211's picture
Rank: Chimp | banana points 13

I understand that physical trading is more relationship driven. What aspects would you say are similar and also different. Is the paper side more likely to fall to quants in the future or is that unlikely? Is the paper side relationship driven at all?

Investment Banking Interview Course

  • 7,548 questions across 469 investment banks. Crowdsourced from over 500,000 members.
  • Technical, behavioral, networking, case videos, templates. All included.
  • Most comprehensive IB interview course in the world.

Comments (6)

Aug 19, 2016

I don't have an answer for you, but: By paper do you mean stocks et al?

I've seen "paper" used your way seldom. Most only for "paper"/mock trading.

    • 1
Aug 20, 2016

No one's gotta give me an answer to an honest question, just throw some more shit :)

Best Response
Aug 20, 2016

Paper = Trading commodity derivatives such as futures and options.
Physical = Trading the underlying commodity

    • 3
Aug 22, 2016

Thanks.

Sep 9, 2016

They are related by nature as the paper products were initially developed to hedge the physical ones. So a large player in one market is likely to have a large presence in the other.

Both are relationship driven, as are most forms of business transactions, but there is always the out that if you are willing to be the mullet it doesn't really matter what kind of relationship you have. Physical is more relationship driven in the fact that the areas you are trading are usually occupied by all the same players necessitating those relationships. Paper doesn't require the actual commodity so anyone could potentially make the market. However as stated earlier traders will default to their established relationships.

    • 1
Nov 20, 2016