Breakthrough Performance In Commodities In a Volatile Market
Although global commodity prices rose 9.2% in February, following an 11.7% jump in the first month of 2022, mostly as supply fears stemming from the war in Ukraine boosted prices of all four commodity groups, the outlook for global commodity prices became more uncertain as the actual impact of the war took center stage.
In a trading environment that as uncertain and risky as the current one, the quality of a firm’s traders will be a critical determining factor in the firm’s success.
While day to day buying and selling will bedriven by economic trend sand arbitrage opportunities in the markets, top-tier traders will leverage knowledge of the industries and sales ability to stand out. For example, BrainWorks’ Commodities Technology and Trading Practice, working with a quantitative trader client, facilitated their buying out from a competitor the contract for a young engineer with only three years’ experience. The BrainWorks client hired the engineer into a full trading role because he can combine his technology background with the fundamental experience he has had.
CNBC’s Delivering Alpha newsletter recently published an article called “Hedge Funds are Doubling Down on Commodities Bets with Some Notching Big Gains”. The article notes that hedge funds have ramped up their commodity investments, and that these are high risk bets with the potential for commensurately high returns. Unlike trading houses, which have been in the market longer, often specialize, and have accumulated expertise in one or more sectors, hedge funds have little or no such expertise.
For this reason, as in the example above, hedge funds and other investors are actively seeking to buy the experience they lack by hiring expert traders from established commodity houses. BrainWorks’ Commodities Technology and Trading Practice has negotiated a number of these hires in the past few months, all of which resulted in very attractive and lucrative moves for experts such as the young engineer in the example.
The critical issue in this new recruiting and hiring market is, first, locating and approaching commodities experts who also bring the knowledge and courage to make what may be seen as risky trades in this difficult and often volatile market where day to day buying and selling are often driven by expectations of economic trends and arbitrage opportunities. Not all traders are comfortable with the intangibles involved in trading futures and options, or with margin requirements. Also, the often seasonal nature of commodities trading makes expertise in more than one sector an invaluable asset and is likely to distinguish top traders from the crowd. Expertise in both fundamental analysis and technical analysis are also critical skills. Finally, the top traders will have a balance of discipline and flexibility – that is, they will make a plan and stick to it, while at the same time being agile in the face of unpredicted events and market moves.
Needless to say, finding a person with this set of attributes is not easy. Approaching them is even harder when they are already working for a firm where they are successful and may not even be thinking of making a move. BrainWorks’ Commodities Technology and Trading Practice team know how to find and recruit these rare individuals, and can do so without exposing their client to accusations of poaching, stealing employees, etc. For the client, this is an arms – length transaction.
Finding these top commodities traders with a mindset that correlates to high performance can be a difficult process. Outsourcing the search for and vetting of candidates is likely to produce the best results. An effective recruiting partner will know how to identify the right combination of skill and experience to find the top candidates and to convey to them the benefits of a move to a higher risk environment that carries with it the possibility of significantly higher rewards.
