Commodity becoming more mainstream and impact of derrivatives
Hi everyone,
I am a junior trader working on a quite niche and strictly physical commodity. There is some buzz around the industry, suggesting that the market might become more massive, and thus a derivative market arising.
As of today, I have no real quantitative skills and no experience with heading and paper trading tools. Would it make any sense to already start training those skills, even though those developments can roughly take a decade to materialize? It would also be difficult to actually train those skills in the meantime.
I have not much insight into how those tools impact the work of a physical commodity trader in a market such as oil or nat gas with a massive derivative market? Not much insight for less liquid paper market as well.
Have you ever heard about industries becoming more massive and purely physical traders being left out due to a rapid expansion of the market?
My first feeling is that it would not make any sense that an actual player does not find a place in a growing market, unable to leverage their market knowledge.
On the contrary, I am still a bit insecure about my lack of hard/quantitative skills, which maybe is a remainder of my non-STEM background.
Any feedback is welcome.
Based on the insights from Wall Street Oasis, it's crucial for traders in physical commodities to adapt and evolve as markets change. Here’s what you need to consider:
Importance of Derivatives: As markets grow and become more mainstream, derivatives often play a crucial role in providing liquidity and price discovery. This is evident in commodities like oil and natural gas, where derivatives are extensively used.
Skill Development: Even if the development of a derivatives market in your niche commodity might take a decade, starting to build quantitative and hedging skills now is advisable. These skills are not only valuable in derivative markets but can enhance your understanding of market dynamics and risk management in physical trading as well.
Impact on Physical Traders: In commodities that have seen the development of a significant derivative market, physical traders have had to adapt. They often use derivatives for hedging physical positions or speculating based on their market insights. Your deep understanding of the physical market can be a significant advantage, even in a more derivative-heavy market.
Learning Curve: Given your non-STEM background, it's understandable to feel apprehensive about acquiring hard quantitative skills. However, many traders come from diverse backgrounds and succeed through dedicated learning and practical experience. Consider starting with basic courses in financial mathematics and derivatives, and gradually advance to more complex concepts.
Industry Examples: There are numerous instances where industries have expanded and adapted to include derivatives. For example, the energy sector has seen a significant increase in the use of derivatives for hedging and trading purposes over the years.
Networking and Continuous Learning: Engage with other traders and industry professionals who have transitioned from physical to more integrated roles involving derivatives. Learning from their experiences can provide practical insights and guidance.
In conclusion, it's beneficial to start developing the necessary skills sooner rather than later. This proactive approach not only prepares you for future market changes but also enhances your current trading strategies in the physical market.
Sources: Physical Commodity Trading, Physical Trading: Best commodities to be in?, (Physical trading) What is considered an 'acceptable' story for why trading?, Will robots replace your consulting or financial career?, Strategic Position of Physical Houses
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