Trading physicals vs. futures?

Discussion in 'Professional Trading' started by mizhael, Feb 27, 2011.

  1. I have mostly been trading commodities futures...
    I was wondering if it is a good idea to also get into trading physicals...
    Taking trading oil physicals as an example,
    it needs quite a bit operations work, sourcing, transportation, etc.
    which of course, is not as clean as trading purely futures...
    I am not so sure if from per capita return perspective,
    is doing physical+futures trading better than pure futures trading?
    It seems to me that there is not much active forums about physicals trading ... so it has been very hard for me to find potential buyers of my D2 diesel that I want to sell...
    Any ideas and pointers?
  2. I remember commenting on physical trading on at least two threads.

    1. I have indirectly seen guys with the physical commodity get badly treated.
    2. I have indirectly seen guys who really wanted the physical get mostly cash-settled.

    Remember the British Sit-Com, Good Neighbors. The protagonists work their butts off to produce a physical. Now they are stuck finding a buyer. Brokers/sales take a big cut especially if you are desperate. Supposing that you do find someone who wants your physical. They don't want drips and spurts. How is their regular supplier going to act next month if he takes your lot instead this monrth.

    Messy business. Can't see any reason to want to carry that risk. The gold people have been going on about the gold futures market becoming disconnected from the gold physical market. Several people have tried to find a way to capitalize on this unsuccessfully. And there we are talking about a non-perishable commodity in high-physical demand.
  3. 1) Wilmott? :confused:
    2) That's one of the "problems" with trading a physical commodity. You have to be "invested" in the ability to make and take delivery of the underlying. :(
    3) Sophisticated traders will always deliver "garbage" to you at the worst possible location at the worst possible time. Leave it alone. :mad:
  4. Il Principe

    Il Principe Guest

    Trading physicals is a low margin/high risk/ high volume-driven endeavor. Is that what you want? Do you want to run a business? Do you want to deal with demurrage, customs paperwork, quality degradation, etc? Do you want to lock horns with Dreyfus, Cargill, ADM? 'Cause this is what you'll be doing.