Commodities traders may have ranked bottom for trading pay by asset class in our recent compensation survey, but this may understate the reality. As commodities trading profits boom, headhunters say demand for good commodities traders has exploded, particularly in areas like power trading, and that for the top commodities traders, the pay is enormous.
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Power trading jobs in 2024 are electrified
“Demand for power traders is up around 50%,” says Paul Byrne, head of commodities trading at recruitment firm Selby Jennings. Extreme weather conditions and a flood of new players to the market are driving demand for power trading talent, says Byrne.
Commodities trading house Trafigura has declared itself “incredibly bullish” on electricity trading and is building out a power trading business. Hedge funds are hiring – Citadel just recruited Mitchell Walk, the former head of North American power and natural gas at intelligence company Energy Aspects. So too are market makers like Jane Street, which currently has a vacancy for a European natural gas analyst and has been amassing power traders for at least three years.
“We’re seeing a big play around the energy transition,” says Ross Gregory, senior partner and head of commodities at Proco Group, a search firm based in New York. “As electrification continues, power markets are becoming more interconnected,” Gregory adds. “It’s not about regional power but the global energy market from LNG to the metals required for batteries and the copper needed for systems. It’s creating a lot of arbitration opportunities, and this is attracting new players like the electronic trading firms.”
James Findlay, head of business development at London-based Venture Search, says power trading is one of the most active areas of recruitment globally. But the recruitment is skewed towards North America, he says: “Trading houses, utilities, hedge funds and banks are all hiring.”
Commodities trading needs quants
McKinsey’s recent report on booming commodities trading profits noted the flood of “data driven” traders into the commodities market. This was presumably referring to the likes of electronic trading firms like Jane Street, Two Sigma, Susquehanna International Group and DRW, which are pushing deeper into commodities trading. As a result, headhunters say a new breed of quant talent is needed in the market.
Commodities quants aren’t just joining the electronic trading firms: commodities trading houses (“merchants”) and hedge funds need them too. Headhunters say that merchants from Exxon to Shell, BP and Aramco have increased their focus on commodity derivatives trading and have built out teams of data analysts and traders with a more quantitative focus than their historic physical trading hires. At the same time, hedge funds like Millennium and Citadel have built their own highly profitable commodities teams around “armies” of quants and data analysts. Last year, around 20 commodities portfolio managers and their teams at Citadel shared a bonus pot thought to be worth around $600m. Spying an opportunity, other funds are building out their own commodities businesses: Balyasny has been hiring; Jain Global recently added David Hochburg, a senior managing director from Macquarie.
Commodities trading pay: Banks vs. hedge funds, vs. commodities trading houses
Top commodities traders are among the best paid in the market, irrespective of where they work.
Banks pay top commodities traders incredibly well. When Edward Emerson left Goldman Sachs aged 47 last year, it was said to be on the back of $100m of earnings in a three-year period. When Nick O’Kane left Macquarie for Mercuria in February, it was after earning $39m the previous year. And when Anthony Dewell left Goldman Sachs for Millennium in late 2022 there were unconfirmed suggestions that the hedge fund had paid him as much as $60m to buyout his historic Goldman Sachs bonuses.
It’s not just banks that pay top talent well, though. Headhunters in the space say that top commodities traders are paid a fortune everywhere; it’s just the structure of the pay that differs.
At electronic trading houses like Jane Street and Two Sigma, sources say commodities trading salaries are typically in the range of $150k-$250k and are supplemented with bonuses that are between 15% and 30% of pnl. When salaries at the electronic trading houses are higher than this, they’re often a drawdown on pnl at these employers.
At banks, sources say commodities trading salaries typically max out at $400k in the US (although the European bonus cap means they may be more in EMEA). Bonuses are discretionary. “The range is massive,” says one headhunter of banks’ commodities bonuses. “Plus they’re deferred for at least three years.”
At hedge funds, headhunters say salaries for portfolio managers in commodities trading are typically between $150k-$200k, with compensation varying from 20% to 30% of pnl.
At commodities trading houses and utilities, headhunters say salaries can be higher at up to $350k, but that payments as a percentage of profits are less, at around 10%.”
“On average, a merchant will pay 10-15% of book, minus costs,” says Gregory. “Hedge funds typically pay around 20%, although some of the newer entrants are paying 25-30% to attract talent.”
It’s not just about the pay, though
. Ranges massively, but most of the bonus will be vested over several years.
While commodities traders are often seduced into joining hedge funds with the promise of high pay, headhunters caution that chasing the money can be a mistake.
Most hedge funds don’t have a physical commodities presence, which can make life difficult when you’re used to working for a bank or commodities trading house – which does, and which gives you a better idea of the prices and flows. Some hedge funds are also new to the commodities space and panic at the volatility of some products.
“You’ve seen hedge funds trying to take commodities risk off during the war in the Middle East, or giving commodities traders really tight draws and stops like equities traders,” says one headhunter. “Commodities traders often decide they need to be somewhere that has more understanding of the commodities market and risk instead.”
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