There is a number of myths and misconceptions concerning a career in commodities trading and particularly in physical commodities trading that I would like to highlight here. For people active in the industry for some time already, most of the simple truths concerning a career in this field becomes self-evident relatively fast. Hence this article is more oriented towards those of you who start a career in commodities trade, consider switching into it, or are at a relatively junior level.
In my view, those simple truths are as follows:
1. Within the best trading houses there is a strong tradition of traineeships/apprenticeships. It goes back to the time of Solomon Brothers prominency and Marc Rich reportedly starting his meteoric rise in a mailing room of the company. The objective to train in-house and advance people from inside of firm is deeply rooted in the industry.
Still some people believe, that it is of advantage in our times to change companies, more often than girlfriends. When you stay in one firm you usually need to wait for somebody else to advance or leave to take his place. Very often suitable role is more likely to appear faster on the free job market. For youngsters without kids the need to move to Singapore or other far flung location usually associated with attractive role is more often fun than a hassle. Hence why not take it?
On the other hand in my work as a recruiter, on a number of times I have observed that employers more often than not see a CV full of short period stints with suspicion. That is especially a case in more conservative Europe. Such an employee is risky to train and might not have performed well on the previous occasions, hence he did not advanced within one company and therefore left, or even worse was made redundant of.
Me personally, I look at the bright side of the situation, while trying to recuperate the details of a career track. Today’s business and market situation change fast, people need to be flexible, and adapt. Also more often than not, senior roles are inter-disciplinary in their nature. As a manager or senior trader it is of benefit if you know all aspects of the business and different stages of the supply chain from your past working experience.
2. Start with traffic operations. In physical trading of commodities, the ability to intimately understand the commodities flows is of unprecedented value. We work with extremely thin margins here. Less than best freight kills the margin and hence render the whole effort of the traders less valuable. Same applies to operations, any delay in loading/unloading of the vessel or a train, generates heavy costs killing the profitability of the transaction. Some of the biggest trading houses do not recruit entry levels/juniors for trading desk at all. Everybody start in the traffic/operations department. I think it makes a lot of sense.
3. Years of experience.Trading commodities in its nature is a simple business. Just like in any other trading, you buy low and you sell high, or rather you buy at a lower basis and sell at higher. I mean, c’mon, traders are not surgeons or engineers. Even if they earn more than some of the most highly skilled professionals. Never the less, youngsters rarely play this game at the higher level. It happens in paper trading, it rarely happens in physical. You learn by osmosis in this business, you need to see the things happening, have a chance to draw conclusion and learn from the past situations. You need to think long term, have a strategy. Everybody can trade commodities after a short training, but you need to be really good to generate an adequate volume and profits.
Network of relevant contacts is key. You need to have people calling you more often than you call them. In that way you are able to generate volume on a continuous basis. Relations take some time to build, particularly the ones that are worthy to have.
4. You can move from physical commodities trading to paper trading, but rarely the other way around. Firms trading futures and options, appreciate the in-depth understanding of fundamentals, which is usually parallel to experience gained in physical commodities trading, when done on international scale. While futures/options traders have excellent understanding of a macro picture, supported by strong skills in technical analysis, they lack a grasp of logistics, storage, contracts and relations with other physical traders. I believe it is a fantastic idea for banks with derivatives trading desks, hedge funds and other purely financial players to hire people with physical experience. They have a hard to beat understanding of fundamentals and contacts that allow them to much better “feel” the market. When coupled in team with financial traders, they can bring lots of added value to the company.