rs261
Comments from people who dont understand the futures market (and perhaps even the stock market) dont really make me want to read or think about them…
“People who argue that speculation is destabilizing seldom realize that this is largely equivalent to saying that speculators lose money, since speculation can be destabilizing in general only if speculators on the average sell when the currency (commodity) is low in price and buy when it is high.”
~Milton Friedman, Essays in Positive Economics (p. 175)
In other words, speculators who continually lose money by buying high and selling low (which would increase volatility and be destabilizing) will be forced to leave the market eventually, and only rational speculators – those who will actually help to stabilize prices – will survive.
“Speculators anticipate shortages and buy up commodities early, thereby removing them from the market. This alerts consumers to the oncoming shortage, fulfilling the important financial market role of providing information and allowing them to reduce consumption as prices rise. Later, the speculator sells, ameliorating the shortage while making a profit.
Speculators anticipate and warn others about shortages—they do not cause shortages. As a result of their trades, price swings are less severe than they otherwise would have been. We do not blame doctors, police, or firemen for profiting from the misfortune of others because it is understood that they help a bad situation. Speculators deserve the same consideration. “
~Joetta Forsyth, Learning to Love Financial Market Barbarians
According to officials with the Commodity Futures Trading Commission, there is little economic evidence that commodity prices are being systematically driven by speculators
Jeffrey Harris, CFTC’s chief economist told the House Agriculture Subcommittee on General Farm Commodities and Risk Management, that the CFTC analysis was based on the following reasons:
• Prices have risen sharply for many commodities that have neither developed futures markets (durum wheat, steel, iron ore, coal, etc.) nor institutional fund investments (Minneapolis wheat and Chicago rice).
• Markets where index trading is greatest as a percentage of total open interest (live cattle and hog futures) have actually suffered from falling prices during the past year.
• The level of speculation in the agriculture commodity and the crude oil markets has remained relatively constant in percentage terms as prices have risen.
• Our studies in agriculture and crude oil markets have found that speculators tend to follow trends in prices rather than set them.
• Speculators such as managed money traders are both buyers and sellers in these markets. For example, data shows that there are almost as many bearish funds in wheat and crude oil as bullish funds.
speculators volatility cftc
was my google search
Of course its also almost always a question on the series 3 exam (test that lets you trade client money in the futures market) as well…