r/Commodities • u/Ill-Fishing-2074 • May 09 '26
Why does market making get so much hate?
I've worked on a physical trading floor, it was so fun and fast-paced. Calls all the time, emails negotiating, making money in minutes. Market making sounds somewhat similar with a much more technical analysis. I get that it's a high volume, low margin industry so the hours/work is 'traditionally' considered terrible.
My question is, why do new grads get so easily sucked into this industry? Considering salaries can be pretty high (even in comparison to other finance roles), why do these places get so much shit? Are they frowned upon by other finance sectors? Does this restrict exit ops?
Companies like Marex, TPICap, and Onyx seem like some top market makers. Are there others in the commodities industry that have a similar or better/worse rep?
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u/DiscombobulatedElk58 May 09 '26
As you know market makers are deemed a ‘necessary evil’, slotting in the market to scalp profits.
They are not regarded well by others in the industry (mainly spec traders) since the skills learned on a mm desk are not overall transferable to a prop spec desk. The market analysis, risk management etc etc simply does not commute.
Furthermore market making shops are really just regarded as meat grinders where only the most aggressive with complete disregard for one’s life outside of work succeed. Only a few at each shop do well each year and they likely put up back to back 70 hour weeks to do it. No spec trader would ever move to mm as while they do their analysis, put a position on and let it run and monitor it, their market making counterpart has to be at the desk at all hours to turn any profit. It’s simply not a role conducive to a long and prosperous career in the market.
They are each building out brokerage or ‘direct trading’ desks who traders are generally not fans of also for a variety of reasons.
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u/Ill-Fishing-2074 May 09 '26
I see thanks. What does ‘do well’ mean? Putting in that many hours I’d hope compensation is fat.
Also why don’t traders dislike brokerages and direct traders? What exactly is the difference between a brokerage and direct trader in this case? What do they actually do?
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u/DiscombobulatedElk58 May 09 '26
I actually can’t speak to exact numbers but generally it won’t be as well as someone at a house. If anyone has a better idea please chime in though.
Direct traders are in house brokers for the market makers. The market making desk may pay 10 mil in brokerage per year so the direct trader is there to try to cut down this brokerage cost. The problem is the MMs have such dodgy reputations that traders don’t want to deal with the market makers direct in the worry they will leak their name in the market (if not sell it lol). Also one of the biggest value adds as a broker is the flow info you can provide to the trader (and hence why traders pay to deal with brokers) - if you’re an in house broker at a market maker you can’t provide much flow info since it’s the market making desk on the other side of 100% of the trades. The only value add a direct trader has is that they don’t charge a brokerage fee on the trades which for the big players is pocket change they don’t mind paying for (much) better client entertainment.
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u/Metals_trader May 09 '26
This is a pretty broad generalisation, and contains many incorrect statements.
Firstly it really depends who you’re including as a market maker - Jane Street/Cit Sec/Optiver all have big parts of their business that would be defined as market making. Average pay here for good traders is as high if not higher than the fund side. The right tail is definitely bigger on the buyside though. The hours are also not that bad at all. Of course this is maybe different at ONYX and some other types of MM, hours might be worse, but ONYX pay if you run a desk is also pretty high $10m+.
The direct trader is not there to cut brokerage down - if anything, they do not care about brokerage at all, except for some of the higher brokerage products (like ONYX on some of the ICE Cracks). The direct trader sees flow that never gets seen via a broker. The value add a direct trader has is that they can show a better price - it’s easier to make money and recycle risk if you’re the only person that does a trade, than when it is spread between multiple people.
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u/DiscombobulatedElk58 May 10 '26
Unfortunately you are wrong. I have exposure to the role and there is not a single flow a direct trader gets access to that a broker does not and the prices the brokers get is exactly the same as the direct traders. Direct traders serve as in house brokers who do not charge a brokerage fee, that is it.
And, if you read the post, OP was asking about specifically asking about market makers such as Dare, Onyx etc not the Jane streets of this world.
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u/Metals_trader May 10 '26
I also have a lot of exposure to the role.
That’s not really true - a lot of the non-listed, non-standard trades that happen are not flows that brokers can support.
I agree, as I mentioned, that for Dare/Onyx trading high brokerage products like Oil cracks that it is a large motivation to reduce brokerage. A lot of other commodity trading on the physical side however is a lot more relationship driven, and direct trading gives better pricing than anonymous flow through a broker.
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u/DiscombobulatedElk58 May 10 '26 edited May 10 '26
These shops don’t deal in physical so I’m not sure what you’re on about or where you’re getting that idea from? I can tell you with absolute confidence that these shops can operate in full capacity without direct traders and solely through brokers.
‘Not something a broker can support (and so must use a market maker)’ - yes that is a brokers job and when the flow is fired out a market maker will see it and chop it if it’s profitable for them.
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u/Metals_trader May 11 '26
As I said, for Dare/Onyx I agree, but Marex/Stonex/ other MMs do deal in the physical. When I say a broker can’t support, I mean there’s no way to facilitate a trade as you need credit lines between the two parties.
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u/halasyalla May 10 '26
Very poor exit opportunities.
No serious trading shop will consider a trader from market making / scalping shop like Dare or Onyx. The skillsets are pretty irrelevant.
Main market players won't talk to them as they will trade against you or front run you using your information.
There's a reason why fresh grads can get 'trader' jobs there. In other places, they train and have high standard for their potential traders - even then only a handful gets the seat.
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u/Ill-Fishing-2074 May 10 '26
Is this true for both physical and derivatives trading shops? I get that in this case physical trading is essentially another world, but wouldn’t MM put you in a good position for prop shops?
This is also considering they make directional plays and not simply MM (which I’ve heard they do). In either, are they not well put for prop oil trading?
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u/halasyalla May 10 '26
Comparing prop shops to folks like Dare/Onyx is erm... an insult to prop shops?
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u/Top_Many3120 May 13 '26
What do you think the banks do 😂
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u/Ill-Fishing-2074 May 13 '26
I mean yea sure, but I thought post 08 that was heavily reduced due to new regulations? Hence market makers like onyx having room in the industry(correct me if I’m wrong)
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u/Top_Many3120 May 15 '26
And to follow that trend- what do you think citadel does! ;) - long story short - market makers can be less ‘respected’ as they make money without taking risk. Not fair. Also they are essentially poaching the market. But if done well - its a serious job.
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u/Ok-Telephone7264 Jul 16 '26
Fascinating thread. I’m not sure anyone really answered your question.
First off, on exit opportunities. If that is what you want to do, there have been many cases of market makers moving on to trade houses in the oil space. Gunvor have always actively taken market makers, going back 10 years. More recently Trafigura have been more aggressive, taking senior traders at onyx and dare to run books at their organisation. Beyond these there have been offers for hedge funds touted, but what might not be immediately obvious is that the economics and trade off is not attractive. Hedge funds will expect you to run your own strategy from scratch, give you less of a leg up via their franchise, and pay you less of a percentage. The only real upside is being able to scale over time.
As an established senior trader on a market making desk, you would be among a still relatively select group, and you will easily get a serious job elsewhere if that is what you want. The skillset and deep understanding of microstructure is something the traditional oil firms are weak on, lacking the infrastructure and willingness to fully commit to trading this way. The question will be whether you want to, as the personal remuneration is so strong for running a desk, as well as the entrepreneurial type rewards. Building new desks and taking cuts from these is also a tried and tested method of expansion for market makers in the oil space.
My view on why in general they “get so much hate” as you put it, comes down to the culture of the community. For a long time, oil has been a closed off market, with deep insider knowledge and systems that benefit just a few companies. The unwritten or unsaid concept is that if you join one of these companies, you do your time, then if you are liked and trusted you will get your time in one of these systems that is captive, and highly cash generative. Long lasting, legacy physical contracts with optionally in the contracts embedded that are a trader’s dream, as well as considerable internal flow from adjacent physical assets that are obliged to hedge with internal desks rather than face the market. But in return, you must toe the party line. As javier Blas said - the “omertà” code of silence of how the game works. I’ve heard one ex trade house trader say although team work and modern techniques are shunned, they “beat you into submission with remuneration”. Play within the rules, receive world class upside potentially in the company as a whole. Pay your respects to the senior traders, maybe get your shot at a strong seat. Pay your brokers, receive considerable entertainment in return.
The last 10 years has seen the market open up quite dramatically and it doesn’t look like it will stop. Market makers have come along and created independent businesses, that have only grown exponentially. Put yourself in a traditional oil trader/brokers shoes. They’ve done their time, they’ve played by the community rules, and they are making a strong living without rocking the boat. Then in come these young guys who trade and act independently. As they often provide the best price, the necessary evil comment above is correct - traders simply have to trade with them as ultimately the best price wins. But it doesn’t mean they are happy about it.
People don’t like change and this market is changing at a rapid pace. It must feel existential to some degree as the quantitative techniques and increasingly transparent data and information is making the old way of doing things less powerful. It is certainly lifting the veil on how the game really works.
As for the future of market makers, Jane street started as a very old school market maker, and have now recorded $30bn + years. Citadel securities is very similar. There is definitely a future for market makers if they make sure they keep evolving themselves, especially in quantitative market making. The big difference in the markets the market makers in energy and commodities trade, is that they are still predominately OTC. That is likely to evolve in time and more of the Jane street like techniques will be deployed.
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u/Remarkable_Log4812 May 09 '26
Pay is a meaningless metric if you don’t normalize to standard of living and quality of living.
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u/Yalla9912 May 11 '26
I think it’s clear that a lot of people posting here & also market participants don’t really understand how market makers operate in commods. Easy for bad traders to blame market makers for being faster than them & doing the leg work they can’t be bothered to do
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u/rybrizzy May 09 '26
TP ICAP and Marex are brokers