Breaking into commodities trading is challenging yet rewarding for those with the right attitude and skills. I’ll share some simple tips to help you transition from university to a commodities trading desk.
Understanding the Commodities Trading Landscape
Commodities trading involves buying and selling physical items like oil, natural gas, coffee, wheat, and metals through exchange markets. Unlike traditional financial assets, commodities are tangible goods with specific purposes in manufacturing, energy production, or consumption.
The industry offers diverse roles beyond just trading, including:
- Traders: Execute buying and selling strategies while managing positions and risk
- Analysts: Research markets and create forecasts to support trading decisions
- Risk managers: Develop strategies to mitigate market, credit, and operational risks
- Operations professionals: Ensure smooth execution of trades and manage logistics
- Sales & Business Development: Focus on client relationships and market expansion
Essential Educational Foundations
Academic Preparation
While not mandatory, a strong educational background provides a competitive advantage:
- Bachelor’s degree: Finance, economics, business, or STEM degrees build foundational knowledge in financial principles and analytical skills. Personally, I think STEM graduates have the best chances nowadays, as long as they are not only good with numbers, they are also good with people.
- Postgraduate studies: A master’s in finance or economics or an MBA can help you with getting your CV more competitive, but it won’t land you a job. Even if you graduate from the Masters in Commodity Trading.
- Continuous learning: The commodities world constantly evolves, requiring ongoing education about market trends and industry developments. You’ll learn every day, or won’t make it very far in the industry.
Beyond the Classroom
Academic credentials alone won’t secure a trading position. Supplement your education with:
- Market knowledge: Read extensively about commodities. Start with books like “The Prize”, “Oil 101,” “The King of Oil,” and Smil’s energy books.
- Industry podcasts: Listen to shows like HC Commodities or Strong Source. They are great ways to see how traders think. Ivo Sarjanovic, ex-Cargill, has been featured in several fantastic interviews.
- Technical skills: Get really really good in Excel, Python, SQL, and other analytical tools used for operations monitoring and market analysis. Coding abilities are necessary for most Power Trading jobs, and all of the Quant trading roles.
Strategic Entry Points
Internships and Entry-Level Positions
Most successful traders start from the bottom:
- Scheduling roles: One of the most accessible paths is becoming a scheduler for your desired commodity (pipeline, rail, or vessel scheduling) for 1-2 years while networking with trading teams and learning from them
- Support operations: Many traders begin in support or operations roles, even with prior experience. My first ever task was to write a cover letter to our port surveyors, asking for oil samples.
- Graduate schemes: Financial firms and trading companies often offer structured programs for new graduates, a bit like a fast track. These are the best opportunities to become a commodities trader.
Building Your Network
Networking is one of the most crucial aspects of breaking into commodities trading:
Industry events: Attend conferences, seminars, and trade shows to connect with experienced professionals. As Woody Allen used to say, “90% of success is showing up”.
- Alumni connections: Reach out to graduates from your university who work in commodity trading firms
- Social media: Platforms like Twitter/X can be excellent starting points for building industry connections. LinkedIn also works very well in commodities, especially if your profile looks competitive.
- University trading clubs: Consider starting or joining a commodity trading club at your university. Practice is the best teacher.
Developing a Competitive Edge
Essential Skills
To stand out in this competitive field, focus on developing:
- Market analysis: Learn about supply and demand. One of the most important tasks of trading teams is to have a clear grasp of the S&D. Without understanding order books, supply and demand, and price formation, you won’t make it. You need to understand the intricacies of the market.
- Risk assessment: Understand how to evaluate and manage market volatility and the risks. Price risk, Market risk, Operational risk, Counterparty risk, Credit risk, etc… It’s dangerous out there.
- Decision-making: Develop comfort with making high-stakes decisions using incomplete information. You’ll be wrong again and again. But as one of my seniors used to say, I just need to be slightly more right than wrong and I’ll be rich.
- Stress management: Build resilience for handling pressure in volatile markets. Commodities trading is not for everyone. This industry is certainly not for those seeking a 9-to-5 job environment.
Practical Experience
Create opportunities to demonstrate your capabilities:
- Trading simulations: Practice with mock trading exercises. You can start trading on basically anything. In my view it’s better to trade with $100 USD of real money than $1B of virtual money. Make it real, even if small. You’ll start to learn how it feels to make or lose money.
- Supply and demand analysis: Learn to track and analyze market trends and price movements. This is foundational. Supply and demand is the live and die of commodities traders.
- Operations monitoring: Understand logistics and their impact on trading strategies. Check tools like MarineTraffic, but also just try to talk to the people at your nearest port or train station. Ask people about the logistics. You can’t possibly trade physical commodities without understanding the actual logistics.
The Reality of Trading Careers
Daily Life and Compensation
- Work environment: Trading can be stressful at times but also quiet during other periods. It’s like one week or month can be pretty slow, and then all of a sudden there’s more work and the craziest price swings. Commodities are not for the faint of heart.
- Work-life balance: While markets are only open when they’re open, global markets are in some sense 24/7. So if you want to go home and disconnect your phone, this may not be for you. I remember one Trading Manager screaming at a Trading Assistant for not picking up a phone on a Sunday. She said she was at a wedding so she couldn’t. He then said, “I’d pick up the phone even if I were at MY wedding”…
- Compensation structure: Base salaries are typically moderate, with significant upside potential based on performance. Top firms tend to pay better. It’s not uncommon to make it big at large trading firms like Vitol, Trafigura, and so on. Over time you may even get a percentage of the trading book P&L. Then, it’s a bit “You eat what you kill”.
Career Progression
With experience, you can advance from junior analyst positions to senior trading or management roles. Some professionals later transition to hedge funds or industry after gaining industry expertise, depending on their skills, and desired work-life balance.
Generally speaking, being a trader at one of the main trading firms is like playing the Champions League. You’re going for #1 every year. Alternatively, the industry is generally more relaxed about trading, as it’s only even part of the sourcing costs.
Taking Action Now
- Focus your studies on relevant coursework and pursue internships with commodity firms or financial institutions
- Build technical skills in data analysis and market research
- Create a strong network by connecting with industry professionals
- Stay informed about market trends and geopolitical events affecting commodities
- Manage your psychology to better deal with uncertainty, risk, and profits and losses
Breaking into commodities trading requires persistence, but with adequate preparation and networking, you can position yourself for success in this dynamic field. Remember that most traders start in support roles and work their way up through demonstrated competence and relationship building.
What separates successful candidates is their commitment to continuous learning and their ability to adapt to the ever-changing commodities landscape. Start building your foundation today, and you’ll be well-positioned for opportunities tomorrow.
