OI21: The Hidden Edge in Markets No One Is Trading ft. Tom Babbedge

In this episode of Top Traders Unplugged's Open Interest Series, host Moritz Siebert speaks with Tom Babbedge, Chief Scientist at Gresham Quant, a systematic commodity trading unit within Cresham Investment Management. The conversation centers on Gresham's ACAR program, which exclusively trades alternative, less financialized commodity markets—such as biofuels, uranium, freight, and niche agricultural products—rather than traditional financial instruments. Tom explains that their focus on commodities stems from the structural, real-world inelasticities in supply and demand that create persistent, long-lasting trends, unlike the 'collapse to one' correlation seen in financial markets during macro shocks. A key differentiator is their strict capacity discipline: despite a theoretical capacity of $2–3 billion, they cap growth to preserve headroom for existing clients and maintain portfolio diversification. The program actively rotates markets—dropping 44 and adding 31 in the past year—based on qualitative and quantitative metrics like speculative activity, market structure, and trend quality, not backtest performance. The most striking innovation is their discretionary, patient execution framework: instead of algorithmic speed, the trading desk is given a risk budget to wait for favorable prices over days, reducing slippage dramatically—effectively achieving near-zero slippage in recent years. This 'waiting game' leverages market randomness, avoiding spread-crossing and allowing for natural position adjustments, while still staying within a systematic framework. Clients are drawn to the program for its low correlation to traditional CTAs, clear structural rationale for trends, and inflation-hedging properties. Key takeaways include: (1) Alternative commodities offer superior, structurally driven trends due to real-world supply constraints; (2) Capacity discipline is essential to preserve diversification and client returns; (3) Market selection should be based on structural characteristics, not backtest results; (4) Patient, discretionary execution can drastically reduce slippage and improve net returns; (5) The program’s success lies in combining systematic signals with intelligent, risk-controlled execution; (6) The clear narrative of why commodities trend makes the strategy more resilient during drawdowns; (7) Commodity trend provides robust inflation protection across economic regimes; (8) Active portfolio turnover (25% annually) ensures the portfolio remains truly alternative and diversified. The overall sentiment is highly positive, reflecting the episode’s focus on innovative, disciplined, and intellectually rigorous investing.