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Opinion
Shelley Goldberg

Why Commodity Traders Are Fleeing the Business

The number of trading houses has dwindled, and the institutional, pure-play commodity hedge funds that remain are few.
Copper, the "beast" of commodities.

Copper, the "beast" of commodities.

Photographer: John Guillemin/Bloomberg
Corrected

Profiting from commodity trading often requires a combination of market knowledge, luck, and most importantly, strong risk management. But the number of commodity trading houses has dwindled over the years, and the institutional, pure-play commodity hedge funds that remain -- and actually make money -- can be counted on two hands. Here is a list of some of the larger commodity blow-ups:

Amid the mayhem, banks held tightly to their commodity desks in the belief that there was money to be made in this dynamic sector. The trend continued until the implementation of the Volcker rule, part of the Dodd-Frank Act, which went into effect in April 2014 and disallowed short-term proprietary trading of securities, derivatives, commodity futures and options for banks’ own accounts. As a result, banks pared down their commodity desks, but maintained the business.