Earlier, we talked about indices from the consumer's perspective. Now, let's take a closer look at how we'd operate an index trading business. To begin with, we'll need to create a set of flagship products. These will be the off-the-shelf indices that form our core business via scale and convenience. Additionally, these products will act … Continue reading The Index Business

Pretend you're an asset manager that's decided to increase your commodities exposure. You don't have the commodity picking experience to effectively deploy $500M so instead you call up your favorite commodities index salesperson. They show you some lovely indices, help you choose one, and charge you a small flat fee to maintain your index. For … Continue reading Index Trading 101

Earlier we took a look at how sales and trading get paid. Now we'll take a closer look at how these incentives can be misaligned. To recap: Jack the salesperson gets sales credits for getting clients to do more trades with the bank. Jane the trader gets paid to manage the risk from client trades. When … Continue reading Getting Paid – Part 2

Let's talk about how securities folk get paid at big banks. First, a toy example of  trading with the client: Jack the salesperson convinces the client to do a trade with the bank. Jack the salesperson asks Jane the trader for a price. Jane the trader hems and haws for a bit, before quoting a … Continue reading Getting Paid – Who Does What?

Pretend you are a natural gas market maker hero (TM). Your goal is to buy gas from producers and sell it to consumers. "Aha!", you think, "I'll just use my magic teleportation and time machines to facilitate that transaction!" Unfortunately, real life is a little more complicated. First, there's often a tenor and size difference … Continue reading Market Maker Hero (TM)

Usually, the producers of natural gas aren't in the same physical region as consumers. For example, the Marcellus Shale gas producing region is far away from urban centers like New York and Washington DC, which consume natural gas for both electricity and heating homes. This results in regional differences in physical natural gas markets. An … Continue reading Teleportation and Time Machines

Relative to equity markets or other well behaved markets, commodities markets are like the wild wild west. Suits, utilities, wholesalers, mom & pop consumers exchange pieces of paper that represent physical commodities like barrels of oil or bushels of corn. Consumers then take delivery of these pieces of paper and later use them in the … Continue reading Natural Gas Markets