Tuesday, August 30, 2011

Searching for a commodity

 I have an idea in mind with regards to optionality trading. But besides oil, I can't seem to find similar products that work in the same way.

The criteria are as follows
  • The physical commodity prices off a transparent exchange on a regular basis (i.e the price of the commodity can fluctuate everyday but there should be a fixed/closing price at regular intervals that is recognised by market players)
  • There is a paper market that follows this price movement
  • Preferably, this commodity can be stored
  • Preferably this commodity's absolute value is low (to make financing the purchase easier)
Thanks in advance. You can comment on this post or drop me an email at ntuchartist@hotmail.com

Sunday, August 21, 2011

Updates after 10 months! - Business ideas / stock market / oil trading

I must say that it has been a very long time since I actually looked at my own blog and did a post. So today, I will just like to share a few things that I have gathered over the past 10 months or so.

1. Seems like many of my business ideas that I actually penned down in this blog has materialised.
a. Coupon dispensing idea has been implemented, though still at the infancy stage
b. Nandos is taking off
c. Teaching financial education to students is getting more popular now

Only the last idea of a landlord agency has not been implemented/taken off yet.

2. The current market correction seems to be a good time to start picking up long term stocks. Look for high dividen yielding stocks to invest in! I would think that REITs with low gearing would be a good choice once their dividen yield goes up to 8+ %.

3. My Job.

I am currently working in a rotational program in one of the top few private oil trading companies. My rotations will bring me through shipping/cargo operations, risk management and corporate finance. So far, I have completed my operations rotation and am currently in risk management.

Being in a physical oil trading industry is more like doing a business as compared to what speculative trading that banks do. The part that most resembles a financial institution is where we use derivatives like swaps and futures to hedge our physical underlying position.

Just a brief summary of what I have done/learned over the last 10 months.

I did shipping and cargo operations for the following products: gasoil/jet/fuel oil. This involves getting vessels to bring the products from one country to another, while watching the quantity and quality of every loading and discharge. Quantity ranges ranging up to a million barrels per vessel. I estimated that the value of products that I personally shipped, is worth more than USD 1 billion during my time as an operator.

I would say that this is really a big responsibility, considering how new I am in the industry. But the responsibility also came due to certain shifts on my desk whereby I became the most senior far east operator on my desk after only a few months. Hence I had to quickly pick up the skills and knowledge on blending, terminal operations on top of the regular cargo and shipping operation.

The main take away that I had from this rotation is that everything in the world is flexible. People are the ones who make things happen. Most often, problems are solved by being creative, flexible and having good relationships with people all over the region.

Risk Management:
This is currently where I am at the moment, working on Naphtha risk management. Essentially in a physically trading house, we minimize the speculative positions by hedging almost 100% of our cargoes. Knowledge of the different exposures in the book is crucial to knowing where the PnL (profit and loss) is coming from.

Exposures can come about from a variety of reasons. The different hedging instruments that are used, or simply different pricing terms that are used on the buy and sell side.  Some exposures are like the Front-to-Back exposure, crack position, east/east position etc. Hence my job is to find out these exposures and see how they affect the book, though some exposures are almost impossible to hedge fully. The ultimate decision on whether to flatten these positions will be determined by the trader.

To end off:
Lastly, physical trading talks about optionality in doing a business. This is the fundamental concept on how to make money in trading and can be applied to any products, any where in the world. The basic concept is simple but it is up to the trader to decide on how to leverage on this and make money. Thus, if any of you out there who are running a simple import/export company and would like to see if this optionality ideal can be used in your business, feel free to drop me an email and we can discuss the possible of applying this concept.