What a physical trader actually does
A physical commodity trader buys a cargo in one place, form or time and sells it in another, capturing the difference between the two after costs. The margin comes from location, quality, timing and the ability to execute, not usually from a directional price bet.
That is why operations, logistics and credit functions sit so close to the trading desk. An unhedged freight cost or a missed laycan can erase the entire commercial value of a well-originated deal.
Risk management
Flat price exposure is typically hedged with futures or swaps so that the residual position reflects the basis the trader intends to hold: a quality spread, a location spread or a time spread.
Freight, currency and interest exposure are managed separately. Where a hedge is imperfect, the residual basis risk should be understood and sized deliberately rather than accepted by default.
Financing
Physical trading is working-capital intensive. Borrowing base facilities, transactional letters of credit and receivables financing are the standard instruments, and the availability of credit is often the practical limit on how much business a desk can carry.
Bank appetite is sensitive to counterparty quality, collateral control and the transparency of the underlying flow — which is why documentation discipline is a commercial function, not an administrative one.
Contracts and terms
Incoterms define where risk and cost transfer between buyer and seller. FOB, CFR, CIF and DES each imply a different allocation of freight, insurance and discharge responsibility.
Quality, quantity, laytime, demurrage, inspection and pricing mechanics are the clauses that generate most disputes, and they deserve more attention than the headline price.
Brokers and intermediation
Brokers provide market intelligence, counterparty reach and anonymity in negotiation. In freight and derivatives especially, broker liquidity is what allows a position to be entered and exited at a workable spread.