When it comes to hiring top commodity traders, what goes around comes around. Wall Street, after years of poaching the best and brightest from specialized commodity firms, is losing the war to keep the essential traders who know how to arbitrage copper or store crude .

After financial reforms sounded the death knell for the excessive use of bank money to trade markets two years ago, banks such as Goldman Sachs and Morgan Stanley had resigned themselves to watching their proprietary trading rainmakers flee to hedge funds with few limits on risk or compensation.

Now as banks make deep compensation cuts and stricter oversight forces them to take less risk and bolster balance sheets, the latest wave of talent migration risks cutting deeper -- luring away the physical traders who excel at arbitraging copper markets, importing heating fuel or storing wheat.

The dozen or so merchants that buy and sell a trillion dollars worth of commodities every year are finding it easier to skim the cream of the trading crop, promising unfettered bonuses and a future share in their typically private firms.

The Mercurias, Trafiguras and Glencores are back to ruling the commodities world, says Wall Street headhunter Vikram Tandon. Those hiring most aggressively are the biggest energy, metals and agricultural trading firms in Europe and Asia.

We have experienced an increase of very talented professionals at banks seeking potential roles at boutique commodity firms and trading houses, said Tandon, executive director at The Options Group, a New York-based global talent search agency.

It is not a particularly hard sell: After the deep bonus cuts, deferred pay-outs or $125,000 cash caps announced this year, change comes easy for traders long accustomed to million-dollar bonuses based on a percentage of their book profits.

It is yet another sign of the growing pressure on the world's investment banks, most of which have already throttled back their high-risk, high-reward speculative dealings -- leaving them more dependent than ever on the specialized traders who can help translate hard-to-read signals in opaque physical market into profitable trading positions.

COMMODITIES MERCHANTS' WORLD

Not too long ago, moving from a merchant trading firm to an investment bank was regarded as the ultimate career step. Now experienced bank traders are happy to go the other way.

There have been emails in the middle of the night from people, said George Stein, managing director for Commodity Talent in New York. We've had a lot of candidates going in for first, second and even third rounds of interviews.

Geneva-based Mercuria, one of the world's top five energy traders, has recruited Ben Green and Liam Brown, two London-based metals traders from Goldman Sachs, industry sources said last week. Mercuria had hired a gas trading team from Barclays Capital and Nordic power traders from Bank of America last year.

Deutsche Bank's physical iron ore dealer Richard Shelley joined Trafigura, an independent energy and metals trader based in Lucerne, Switzerland, late last year. Refined oil product traders Jan-Jaap Verschoor and Chris Dorfman left Bank of America for New York-based Hetco recently.

There's always been a two-way flow, but it's now much more one directional to trading houses, said an analyst at a European bank who has worked with merchant trading firms. People at the big banks, which turn over huge amounts of cash and are paying only $125,000 bonuses, are not happy.

The trend may continue through the first part of the year as traders collect deferred cash bonuses.

Glencore , the Switzerland-based commodities giant, could ramp up its search for commodity professionals as it bids to buy miner Xstrata to create a $200 billion mining, agriculture and trading powerhouse, headhunters said.

They said other major independent merchants such as Dutch energy traders Vitol and Gunvor and Asia's Noble may also be looking for new talent to position for a market rebound after the difficult trading conditions of 2011.

A senior executive at a merchant trader said it was wrong to assume his peers were simply scavenging for cheap talent.

Some people are seeing the benefits of a private structure, where they can get a piece of the action, he said. Glencore's public listing last year made overnight billionaires of a handful of senior traders.

David Messer, chief of newly launched Freepoint Commodities, is at the fore, re-hiring many of his ex-colleagues from Sempra Commodities, the global merchant-trader he ran for over a decade before it was sold to RBS and then to JP Morgan . Big swingers who want to run a big prop book need not apply.

It's a business that's about hitting singles consistently rather than going for the big swing, Messer said last month.

Goldman Sachs and Citigroup declined comment while other banks contacted by Reuters did not respond.

Privately though, bankers say holding on to the troops has been their worst nightmare.

We try to keep them engaged, give them the space for entrepreneurial trading, but it's hard, says one senior executive at an investment bank.

MONEY TALKS, TRADERS WALK

Latest compensation cuts at investment banks, including those in Europe, have been deep and wide after a tough year in which profits fell sharply, especially in trading divisions.

Citigroup cut last year's bonus by about 30 percent. Morgan Stanley capped 2011 cash bonuses at $125,000 per person. Goldman Sachs snipped compensation by over 20 percent, and Bank of America reduced the cash portion of its bonus by 75 percent.

In Europe, Barclays Capital saw a 32 percent slash in bonuses. Deutsche Bank said it will defer any part of an employee's bonus above 200,000 euros ($264,800) this year.

The departures for now appear to be most evident on commodities desks; financial dealers have fewer alternatives that offer better pay or opportunity than Wall Street, headhunters say.

Many equities traders, for instance, are happy simply to have their jobs amid deep job cuts as banks implement the Volcker and Dodd-Frank financial reform acts, aiming to curb the kind of excesses that led to the 2008 financial crisis.

While many banks had viewed commodity markets as a likely source of growth following the reforms, some are reassessing the merits of maintaining their trading presence. U.S. banks made $5.5 billion from commodities trading in 2010, according to the Office of the Comptroller of the Currency (OCC).

With dollar funding costs climbing and risk appetites reducing, it's a business banks are moving away from, said Paul Sharp, former head of metal sales in New York for BNP Paribas , which scaled back its desk last November.

BANKS HAVE LOST THEIR BEST

To be sure, many traders are still being lured away by the siren song of a hedge fund.

Barclays' global head of macro trading Todd Edgar pulled four of his colleagues from the bank to begin trading later this year at his hedge fund, Atreaus, which will start with about $200 million of capital. An Atreaus spokesman declined comment.

As a result, banks are counting more and more on the traders who run smaller or more niche books to keep the lights on.

Much of the best talent that you had on the sell-side at banks have already been picked over by the hedge funds, said Ilana Weinstein, chief executive at the IDW Group, a New York-based executive search firm that works with hedge funds.

I'm disinclined to say there's no one good left behind, but it's few and far between. There are some folks left who might be able to find a better home, but I think it's slim pickings.

But many caution it's too early to count the banks out yet.

While the Volcker Rule is meant to dramatically curtail a banks' ability to make bets with its own money, some experts say there may be enough gray area between speculation and customer business -- particularly in commodity markets -- to keep Wall Street traders incentivized and engaged.

Banks have already began blurring the lines between flows trading for clients and prop trading, said Dan Siliski, risk manager at Four Winds Capital Management, a London-based commodities fund with about $1.4 billion under management.

They can say 'oh, that's flows trading', when they're actually making proprietary bets with proprietary money. You can't regulate that away.

(Additional reporting by Eric Onstad in London; Editing by Alden Bentley and Jonathan Leff)