Short answer: by owning the logistics and the risk better than the next guy. Traders buy, store, ship, and sell real barrels, tonnes, and bushels. The P&L comes from price spreads, timing the curve, moving the product cleanly, and locking margins with hedges. Giants like Mercuria, Glencore, and Trafigura do this at global scale. Smaller desks (two to five people) win by knowing a niche cold and getting financed fast.
| Driver | What it means | How traders capture it |
|---|---|---|
| Location (basis) spread | Different prices by region/port | Source in surplus region, sell into deficit; charter the route that clears fastest |
| Time spread(contango/backwardation) | Curve shape pays you to store or to move now | Store in contango (sell futures); sell prompt in backwardation (buy futures) |
| Quality/grade optionality | Blending or upgrading to match spec premiums | Blend metals/grades; optimize sulfur/octane; pocket the spec premium |
| Freight & logistics | Tonne-mile costs and congestion create arbitrage | Time-charter vs voyage, re-route, co-load, swap laycans, avoid demurrage |
| Financing & hedging | Funding and price risk management shape net margin | UPAS LCs, trade loans, repo on inventory; hedge futures/swaps/options to lock the spread |
| Instrument | What it funds | Typical advance / tenor | When to use |
|---|---|---|---|
| Commercial LC / Confirmed LC | Supplier payment vs compliant docs | N/A funding; adds bank credit & document control | Seller wants bank risk; country risk needs confirmation |
| UPAS LC(Usance Payable At Sight) | Sight cash to seller; tenor to buyer | 30–180 days buyer tenor | You need time to sell/process; seller wants immediate pay |
| Transactional trade loan/ import loan | Cargo cost, freight, taxes/duties | 30–180 days; rate = benchmark + spread | Back-to-back with sale or short inventory turn |
| Inventory repo/ stock finance | Stored product under CMA/tank control | 60%–85% of landed value; rolling | Contango/storage play or steady program |
| Receivables discounting/ forfaiting | Post-delivery invoices | 70%–95% of face; 30–180 days | Offtaker creditworthy; you want cash in sooner |
| Risk | Control you want in place |
|---|---|
| Flat price & basis risk | Futures/swaps options; define hedge ratio and stop-outs |
| Credit & performance | LCs/confirmations, credit insurance, performance bonds, prepayment security |
| Ops & logistics | CMA/warehouse control, laytime tracking, quality & quantity inspection, loss allowances |
| FX & rates | Forwards/swaps; match currency of costs and sales; UPAS for tenor |
| Sanctions & ESG | KYC, restricted party checks, vessel/port screening, documentation that matches the LC |
Do I need a full hedge on every trade
No. Hedge to protect the margin you’re targeting. Leave only the risk you’re paid to take.
Can a small team really compete with the majors
Yes—by owning a niche, moving faster, and fixing documents and credit early. The majors don’t chase every small spread.
What kills P&L most often
Demurrage, unhedged basis, and document failures under LCs. All avoidable with discipline.
Best financing for fast-turn trades
UPAS LC or short trade loans. For storage plays, inventory repo with tight controls.
Do I need confirmation on every LC
No. Add it when the seller won’t take issuing bank/country risk or the contract requires it.
Send the spec, route, volumes, and target dates. We’ll map the funding, hedges, and controls so the trade clears and the margin sticks.
Talk to Commodity FinanceInformational only. Any financing depends on credit approval, KYC/AML, sanctions checks, and executed documentation. Pricing, advance rates, and hedging costs vary by commodity, corridor, and counterparties.
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