Physical versus paper
Physical trading moves an actual cargo from a seller to a buyer. Paper trading transfers price exposure without delivery. Most physical trading firms use paper markets to hedge the price risk created by their physical book, so the two are complementary rather than separate activities.
Where value comes from
Physical traders earn margin from arbitrage across location, time and quality: moving a cargo to where it is worth more, storing it until it is worth more, or blending it into a specification that is worth more. Each of those requires access to logistics and to capital.
Contracts and incoterms
Terms such as FOB, CIF and DES determine where title and risk transfer and who arranges freight and insurance. The choice affects pricing, operational responsibility and how disputes over quality or delay are resolved.
Financing
Cargo purchases are usually funded through trade finance: letters of credit, borrowing base facilities or receivables financing. Access to bank credit is often the binding constraint on how large a physical book a firm can run.
Risk management
Traders manage price, basis, freight, credit, currency and operational risk. Middle-office capability determines which positions a firm can safely hold, which in turn shapes its commercial scope.
The role of brokers
Brokers provide market access, price discovery and counterparty matching, particularly in less liquid physical markets. Increasingly they also supply execution tooling that standardises nomination and documentation after a trade is agreed.
Logistics and operations
Operations teams turn a trade into a delivered cargo: nominating vessels, coordinating terminals and inspection, managing laytime and resolving quality questions. Most avoidable losses in physical trading occur here rather than on the price.
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