Switching from paper to physical trading and back

Paper trading, defined as trading derivatives and commodities on OTC paper markets (look no further than paper market for grains in Hamburg, if you try to second guess what I mean) enjoyed for long much more attention than physical trading. Physical trading stayed in the shadow radiating the aura of obscurity. In major world commercial centers, the openings for paper traders have been much more plentiful than for physical traders.

If you told somebody at the cocktail party that you trade commodities, you were perceived as a person sitting in front of 3 screens with charts and blinking numbers, trying to guess whether price of oil derivative contract will go lower or higher in the next minutes/hours/days/months.

This situation changed in last years with physical trading receiving more and more exposure as (arguably) more interesting/complex form of commodities trading.

One still would be under impression that there is more paper traders than physical traders out there. Yes and no, I would say.

If you define being a physical trader as a role involving trading volumes close to being traded by paper traders in financial sector and doing it globally whenever arbitrage opportunities arise, then yes.

However, please mind that there is a number of physical traders worldwide, working in trading companies, focused on distribution of commodities on local/regional markets. These traders, often excellent in their own niche, frequently lack know-how and experience to take their trading to higher, global level. Commodities Academy was created keeping such traders in mind.

One might argue that the matter of financial strength of the company would play a role here. However from my experience, regional/locally based commodities trading companies are often very sound financially, operating long and successfully on their respective markets.

Very often they could employ their amassed capital to generate higher returns trading globally. They usually do not do it, because they do not know how. While the future is right there.

It often happens that physical traders are getting employed as paper traders. It seems a sensible thing to do. From companies’ point of view, it is better to hire a person who knows a great deal of commodities producers and industrial consumers (often knows people working there personally), their physical flows, and of any supply chain disruptions/gluts before folks from global media agencies bring them to the attention of the wider public.

It rarely happens other way around. Paper traders, had excellent grasp of what is happening on exchanges. Currently level of sophistication (automation) of paper trading very often requires a strong grasp of advanced mathematics/statistics and knowledge of programming languages. However excelling at these fields (useful as they are) hardly makes a paper trader eligible choice to handle buying coltan in Africa, making sure it is of relevant quality and conflict free and delivering it to High-Tech manufacturer in Asia. All of it on time and at bargain price.

However the knowledge and skill set of paper trader should not be ignored. Person with paper trading experience after undergoing a course in Commodities Academy will have an advantage over your-avarage physical trader in understanding of risk management and in balancing a paper and physical positions. This is why we warmly welcome paper traders in our course, while firmly believing that we can enhance their value proposition on the job market.


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