How Much Do Glencore Traders Make?
So What's The Number?
In the corporate world Glencore is known to be a shy beast - it's only since it went public that we know virtually anything about it. Figuring out what a trader at Glencore earns is not straightforward but if you dig deep you can put together some scraps of information and slowly build up a rough picture of the earning potential at Glencore.
Here are a few data points that can be assembled which point you in the direction towards the correct answer.
Reddit Ask Me Anything: A user who claims to be a Glencore trader (whose knowledge is sufficiently convincing to believe him) claims he earned $1.1M in 2015
The Independent (British Newspaper): In an article entitled "Glencore Oil Trader on Working Practices: Make Money and You Can Do Whatever You Like" - about a trader who was dismissed for being absent or late on more than 60 occasions - it is claimed that he was paid £140,000 ($220,000) per year. He also claims to have received a £202,000 joining bonus and was in court to get a bonus of shares worth around £620,000 ($1M).
Daily Telegraph (British Newspaper): It was reported that just prior to the flotation in 2011 six employees of Glencore would become billionaires. Five of the six where traders and the other was the CEO Ivan Glasenberg.
Glencore Graduate Scheme Salary: According to a flier for their graduate program Glencore is offering £40,000 ($62,500) per year as a basic salary at their London office.
It is worth noting that there is huge variability in income among Glencore traders and even between years. A senior trader who makes a massive profit one year can make millions that year but lose money the next and only earn their basic salary (a few £100K) while having their career put at risk. Glencore rewards success and punishes failure. Furthermore when the stock is going up traders are making lots of money whereas when it is going down they will be losing lots of money.
Worse still, if a trader held £1M of stock which fell 50%, did not get a bonus and had a salary of £200,000 they would finish the year with a loss of £300,000 before tax.
How They Earn It
Most people earn money in their job though their salary however at Glencore things are much more complicated. Although the salary for a trader is often very high it is not typically the biggest part of their pay. In any given year a traders compensation can be made up of:
- Basic salary.
- Various bonuses.
- Free shares.
- Exercisable share options - you get the right to buy shares at say £2. If the share price goes up above £2 (say to £2.50) you get to buy a certain number, let's say 100,000. Therefore with options at £2 and a share price of £2.50 you can buy shares the 100,000 shares for £200,000 and sell them on for £250,000 leaving a £50,000 ($77,500) profit. If the share price goes down you just don't buy any shares and you break even.
- Dividends on the shares you own (if you had £1M of shares in August 2015 you would get around £55,000 or $85,000 for the year in cash which represents your share of the company's profit).
- Profit made on holding share in the company (for long term traders this can be huge).
- Large joining bonuses paid by other trading firms to poach you away from Glencore.
Are Traders Paid Too Much?
It Can Get Insane
To put things in perspective, traders at Glencore have been reported to have salaries that are three times that of an established senior doctor. Remember that's before any variable compensation which is often much larger than their base salary.
If Your £100,000 Of Stock Grew at 10% Per Year...
How Much Traders Can Earn From Stock Options
£1 or Under
What Do The Traders Actually Do?
How exactly is it that Glencore traders earn so much? Well, for a start, the job has extremely high stress levels. You are constantly being evaluated on how much money you are making. You are also trading millions of dollars of commodities every day. The most senior traders will be carrying out transactions involving billions of dollars as a matter of routine. Mistakes are fantastically expensive and the culture is tough. They may be well paid but few are able to do what these people do. But how is the money actually made? What do they do exactly?
The simple answer is that they are responsible for buying and selling. That is the essence of trading and is, hence, what a trader does. The secret sauce at Glencore is that the trading is surprisingly consistently profitable. It usually irrelevant whether prices go up. down or nowhere at all in many trades.
This is because traders typically rely on dependable anomalies in commodities markets and use the power of Glencore to make money out of them. In other words they take advantage of differences between two prices for the same thing - which is known as arbitrage.
One such form of arbitrage is geographical arbitrage. This is a situation where the price for a commodity is different in different places. Therefore if you can buy it in the low priced area and sell it in the high priced area; you will be able to make the difference less the cost of getting it there. Glencore owns or has access to the infrastructure required to get the commodity between the two points.
Imagine for example that crop yields are down in the United Kingdom. That's going to make the price of grain go up and the UK is going to have to import more grain. Now imagine in the same year that Australia has a record year and is swimming with grain. In Australia the grain price will fall. Hence a trader could buy a couple of million tonnes of grain (Glencore trades close to 200 million tonnes per year) and have them loaded onto bulk carriers and shipped to the UK. As long as the trader can be sure that the cost of shipping is less than the difference in price then the trade will be profitable. If Glencore can make only a few dollars per tonne the trader can make millions for Glencore by moving huge volumes.
However, if the trader could pre-empt the supply and demand imbalance then the trade would be much more profitable. This is part of the reason why Glencore owns hundred of thousands of acres of land. The trader can use the data from Glencore's farming assets to help in the trading decision making process. A trader sitting at a trading desk in a bank would either not have so much information or would have to pay so much for it that it would not be worth very much. Furthermore Glencore has the capacity to store huge amounts of commodities allowing traders to hold huge amounts of commodities bought at low prices to sell on at high prices in the future.
Another form of arbitrage that is a major part of Glencore is time arbitrage. This is where there is a difference in price between what you can pay for a commodity now and what it can be sold for in the future. Traders at Glencore use various tricks such as data analysis, futures contracts, commodities storage and forward contracts to set up such opportunities.
The Glencore Pyramid Scheme
How to Become A Glencore Trader?
Becoming a Glencore trader is not easy. The best way in is either through the Glencore Gradate Program (which has huge number of applicants) or to gain experience and work your way in. The big commodities trading companies such as Vitol, Noble and Trafigura are constantly poaching traders from each other (typically by paying huge joining bonuses). Hence if you can get in at one of them your chances of getting in at Glencore are high. Furthermore experience in trading can be gained in the big oil companies such as Exxon, Shell and BP etc or at various big mining companies which can be a route in. Small trading houses also exist which are less competitive.
Fundamentally you need to be able to convince the human resources people and existing traders that you are going to be an asset to the company. The most convincing way is to have a track record of trading profitability. If you've got that then nothing else matters very much. Otherwise a first class degree in a hard subject (mathematics, engineering, science etc) usually gets the attention of the recruiters. Mining or agricultural experience is also very valuable. You will also have to be able to prove that you have at least a basic understanding of mining and commodities to stand any chance of getting a job at Glencore. It is also worth noting that Glencore is highly entrepreneurial so anything you can do to show experience of this will stand you in good stead. Furthermore, a relevant internship is absolutely essential.
It is also worth remembering that unless you have a lot of trading experience you will not enter Glencore as a trader. Typically the work that the traders of the future do is pretty dull - data analysis, managing the execution of the trades of others and lots of back office work. You really have to pay your dues before you get the big money.