Life at a Commodity Trading Company: My Top Takeaways

My Life as an Employee for a Commodity Trading Company

Up until May 2018, I had spent nearly 80% of my working life employed at a Commodity Trading Firm.  It was a fantastic experience and I enjoyed much of my time there. After a careful and extended deliberation, I decided to leave that employment to seek greener pastures.   

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Being at the company for nearly 9 years, I learned so many life lessons that I will carry with me throughout the rest of my life.  

I worked in the finance department as the Credit & Compliance Manager.  My core job duty was to make sure that our accounts receivable portfolio was running smoothly.  I also took on many projects along the way and learned that I enjoy project management. In fact, I am painting my house and recently referred to painting jobs as “Phase 1”, “Phase 2”. “Phase 3”, etc.  #nerds unite!

What I learned working for a Commodity Trading Company

Most of what I saw was good, some of it was bad, and a tiny bit of it was downright ugly.  I won’t get into any details of my employment in this particular post. Rather I will be sharing some general life and business lessons that I picked up along the way.  Enjoy!

A Sale is Only Final When Money is in House

There was a few times in my career when a trader would come to me and say something along the lines of “Matt, I made this monster sale to so and so and the market swung in our favor! I have $200k of profit built into the sale.”

While this is a good thing with an honorable customer, often times it was an excuse for a customer or supplier to find issues with their current contract and attempt to ‘walk’ on their performance obligations.  

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Imagine if you booked an apartment for $1500 a month.  Two weeks later, you find out the rent had dropped to $1000.  How incentivized would you be to pay $1500 a month when the current market rate is $1000?  I would say many people would walk and break leases. Luckily the market for housing doesn’t move as fast as that but in trading it can and frequently does.  It is all part of the game.

Because of this, I quickly learned that even though you might have made the biggest sale in the history of the company, it is only considered good when the cash is in house. Therefore it is pertinent to know how much business your customer or supplier can handle and what level of open position is tolerable with the counterparty. Investors need to understand this risk and book the size of their contracts and trades accordingly.

Abundance Exists

There is so much money floating around that it boggles the mind. One only needs to sincerely believe that good will come and the universe takes care of the rest.

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In my time of employment, I was very blessed to be able to travel extensively, enjoy membership perks at great clubs, and partake in experiences that I only dreamed possible when beginning my career.

None of this would have been possible if I hadn’t believed in the power of abundance and taken direct, actionable steps to realize that abundance in my life. Now, I have not always adhered to this philosophy but it is something I have grown to understand over my lifetime. Begin with adopting the belief that good will come to you and the rest will follow suit. Trust me, the life of your dreams is waiting to find you.

Learning how to Negotiate is Essential to Your Career

There is no doubt about it, negotiations are challenging. It is not easy to negotiate rent, your salary, or terms with a potential customer, but without it you will find yourself falling behind due to not mastering this needed skill set.  

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Being able to negotiate comes from a place of high self-esteem and self-worth.  If you think you are worthy of the thing, then you will be more apt to speak up and say so.  But once you make the choice to negotiate, stick with it. A few thoughts about what I learned in negotiations:

1. Keep it cordial.  Remember that it is just business or at least it should be just business.  If it begins to border into the realm of being personal, figure out why and address that issue.  
2. Know your purpose and the other party’s intent.  Why are you negotiating? What are you hoping to gain from these negotiations?  What is the other party hoping to gain from the negotiations? Knowing the answers to these questions will help you immensely.  A great book on negotiations that I recommend is Getting to Yes.  
3. Know when to walk away.  You always begin negotiations with your end in mind but might come to realize it is not achievable as the other party refuses to come to the table.  This is OK and a part of life. You might not be able to win the negotiations; if this is the case, know what your exit strategy is. It might be time to walk away and never look back.  

Know your Limit Strategy

Another term for this is to Know your Risk.  Often times it might be enticing to take on a large position in a stock or deal you know will go well.  However, this is the mindset of speculators and while fantastically right at times, they are fantastically wrong at times too.

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Instead of putting all your eggs in one basket, know what your limit strategy is.  How much are you willing to take on of a certain position and why? Often times I find it best in my own life to limit positions to a certain percentage of overall exposure.  For instance, I currently have the rule of limiting any one stock in my dividend portfolio to 15% of the total portfolio value. I feel that this strategy allows me to better manage my risk and thus my emotional state; if one stock goes down, another stock is up, which helps calm the nerves and keep emotions out of the picture.

Regardless of what your strategy happens to be, know the ins, outs, and whys and most importantly, stick to it so long as it continues to be founded on solid ground.  

Payment for Product beats Payment for Hours worked

This is a mindset that I have started to develop during my working life at the commodity trading firm.  I was paid a salary during the year and occasionally a bonus. It was a nice gig, but the more and more I reflected on it, I came to realize that being paid salary or hourly is not the best way to achieve Financial Freedom.  

Sure, you can make a lot of money but it is always at a cost. If you are super efficient in how you work, you will not receive accolades from the powers that be but rather a “why don’t you work more?”  In fact, one of the higher ups was fond of saying, “how many hours do you have to fill?” It did not matter how much you did as there is always more to do.

The entire working model of hourly/salary employment is to squeeze as many hours from employees as possible.  The challenge with this is that some employees are far more efficient that others. The working world adheres to the ‘bell curve’, with your top 10-20% of employees doing an amazing amount of work, the middle 60-70% doing the typical amount of work, and the bottom 10-20% doing the least amount of work possible.  

I have come to see that it is far better to work to set up systems where you can leverage product-based sales so that regardless of the hours or time you have put in, the only measure of productivity is “how many items have we sold?”  This is where the true greatness lies and this is now my muse after which I chase.

This is what I now refer to as my “Product Model” or “Service as a Product Model” of doing business.  I recommend reading The Four Hour Workweek as it discusses this principle in more detail.  

Read the Fine Print

Contracts, terms and conditions (T&Cs), notes, agreements, etc.  All of these have in common the boring minutiae of being long, exasperating, and confusing via lawyer-speak being built in at every turn.  But reading and understanding what you are signing is one of the most important things you can do for your business and for your personal life.

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Most of the time things ran smoothly at our company; however we occasionally had a few situations that went south and we had to bring in lawyers to help us rectify and solve the circumstance.  The very first question I was always asked was “do you have a signed contract?” Lawyers understood the importance of our terms and conditions in the court of law as a good set of T&Cs would make resolving the situation much more favorable.

I took notice of this knowledge and now I always give the T&Cs a quick read through in my personal and professional life.  I find that once you start to understand what you are looking at, a quick brush over and you will begin to see elements that you cannot nor should not agree to.  

Speculating with Big Numbers often Ends Badly

We had a saying at the company: “be afraid of big numbers.”  Overall the company operated conservatively and it showed in the managing of the company’s risk profile.  

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More often than not, big numbers could mean big losses.  Rather than make or break a year on one big trade, the goal was to make smaller yet profitable and more risk-averse trades which would add up over time. It was a grind-type way to make money but at the same point, we didn’t succumb to situations like we’ve seen at Nidera or Glencore, where big swings in pricing nearly took these two behemoth companies down.

Position Risk is the Biggest Enemy

Position risk, also known as brought to market risk, was the biggest known risk that our company faced.  When we contracted with a counterparty, we were able to fairly accurately gauge how well the particular company would be in paying its bills.  However, the one thing we could not control was what direction the market would trend.

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If the market went up and we had on a large long position on product sold, it was technically not good for us because we did not sell at the highest price possible.  

If the market went down and we had on a large long position on product sold, it was technically a better position for us as we sold at the peak.  

However both of these elements have unique risks to them.  On an upswing in market prices and long positions, you run the risk that nefarious suppliers will not perform.  On a downswing in market prices, the same is true of customers.  

All one can do is manage position risk accordingly and make sure that a position isn’t so large that a drastic swing in market prices won’t cause the company to come tumbling down.    

Beware of What Lurks Unseen

Often times the biggest risk to you is not what you can anticipate but what you cannot anticipate.  Selling to counterparties on credit was one of the least riskiest undertakings we did as a company mainly because we could plan for and account for the risk through the credit analysis process.  If a counterparty was higher risk, we knew it beforehand and planned accordingly.

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The more dangerous risks were those you could not see.  Large price swings in the market, demand going down for a product our customer’s depended on, political risk increasing in a country we sold into or that our customer sold into.  The list could go on.

My main learning with this point is to always be asking questions, probing for answers outside of the box, and assume there is a lot you don’t know about a situation.  As Financial Freedom seekers, if we do this in our personal lives – challenge assumptions we may hold on a daily basis – we will realize much greater outcomes in our lives as a result.

Learning to Relax and Disconnect is a Skill

Making million dollar decisions in a matter of seconds is not an easy job.  Part of me thrived on the high levels of stress that came from working in such an environment; another part of me realized that if I was going to continue on at the level and pace that I was on, I was going to need to learn some new skills.  

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The skill I needed to learn the most was the ability to relax and disconnect.  It sounds very cliche, but I did need to learn how to relax and unwind to alleviate stress.  Over the years, I have learned to meditate, exercise regularly, and practice mindfulness throughout the day.  I feel like all of these practices have helped me to better handle stress and the turbulence that can (and will) come in daily living.  

Whenever I am getting stressed out these days, a quick 20-30 minute walk in nature usually calms me down to the point where I am balanced and mindful once more.  Find out what helps you de-stress and hold onto that with all that you have.

So there you go, these are a few of the lessons I learned during my time in a high stress working environment.  Perhaps you agree? Disagree? Comment below to get the conversation going! I’d love to hear from you!

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