6 ms·

The big players used to corner small markets which then led to extreme blowouts. It doesn't happen as much now as there are tighter regulations on max position

by dm3 8y ago

The big players used to corner small markets which then led to extreme blowouts. It doesn't happen as much now as there are tighter regulations on max position sizes and the volumes are higher. Significantly influencing the price of a commodity with liquid markets, such as corn or soybeans is pretty much impossible unless you're acting on behalf of a country or are able to control weather. The existence of liquid markets is beneficial for the producers and consumers as the price volatility is reduced and hedging becomes easier. I like to showcase the effect of information on price with the example of fish price in Kerala before and after the introduction of mobile phones to fishermen[1]. The financial world is evolving very quickly with various participants driven by different goals pulling the rug in opposite directions which theoretically should reduce volatility and spreads. However, when people get greedy - and there's a lot of that in finance - bad things happen, e.g. see the natural gas last week[2]. [1]: https://www.researchgate.net/figure/Changes-in-fish-price-volatility-with-the-use-of-mobile-phones-in-Kerala_fig4_285771360 https://www.researchgate.net/figure/Changes-in-fish-price-vo... [2]: https://www.ft.com/content/b7c525f6-ec44-11e8-89c8-d36339d835c0 https://www.ft.com/content/b7c525f6-ec44-11e8-89c8-d36339d83...

BurnGpuBurn 8y ago
> The existence of liquid markets is beneficial for the producers and consumers as the price volatility is reduced and hedging becomes easier. Yeah, that's a nice fairy tale. It isn't true though. It's criminally untrue. I can't eat volatile grain, nor hedged grain. I just eat grain. At a price I can afford, today and tomorrow, not bankrupting me in the process. When you're hungry you really don't care about all the financial jargon. You care about price. Traders cannot make a profit if they don't manipulate the price. Simple, if a trader always sold for the same price he bought for he wouldn't make any money. So price goes up, trader has profited from the grain I eat, and has taken a few cents out of my pocket. And I don't even trade. I just live on a dollar day in a shithole somewhere. If everybody bought just the grain they needed to eat, and every grain producer simply put their product on the market for people to buy, without a "liquid global market" and price index, without traders in the middle wanting to profit from it, my food would be affordable. But because the market bets on a price rise in the future, even though the bad weather hasn't materialized yet, my food is unaffordable. In financial, when someone profits, someone hurts. And the one that hurts is almost always not even in the game. > Significantly influencing the price of a commodity [...] is pretty much impossible unless you're acting on behalf of a country or are able to control weather. No. A market can do that by itself. It's what all those terms bullish and bearish and stuff are for. Markets can drive up commodity prices like a rocket. Bad weather coming? "Let's buy all the grain everybody! Guaranteed profit! Just ignore the starving people over there, they'll go away fast enough." And buy the way, all those think tanks and the pentagon predicting a shortage of every natural resource in the near future, that's not going to influence the price at all, right? Great example of how a country manipulates commodity prices btw. Financial trade is just people profiting from people who are worse off to begin with. And don't start about how nowadays regulations are much tighter and all that, it's just not true. Everybody always says that in times when stuff is stable, but as soon as something big happens everybody starts the "nobody could have forseen this" dance followed by the too-big-to-fail entities being saved by the govt and the bill footed to the people.
- Applejinx 8y ago
  This position is further supported by the reality of real estate speculation: in London, in Silicon Valley, you can count the housing units that are owned by extremely wealthy capital holders, and kept empty because the increase in value will exceed any profits taken from filling them (minus the costs of maintaining them). That's the market actively destroying the fundamental purpose of a good because the dynamics of its value are able to bring more profit than using the good for its existential purpose. If that can happen to housing, it can happen to anything. BurnGpuBurn is absolutely correct here.
  - bunderbunder 8y ago
    Real estate is rather different from the commodities markets, though: It's most definitely not a commodity (if you don't count things like mortgage-backed securities, anyway), and the markets are frighteningly illiquid. There are things like futures and options on real estate, but they operate very differently from your average put on hard white winter wheat. There's an argument, not entirely (as far as I can tell) unreasonable, that at least some trading firms - the market makers - are benefitting the small folks in these markets. The argument goes that they do siphon profits out of the market, but it's mostly the profits of other financial firms. What they're ultimately nabbing is profits that come from information asymmetry, and that asymmetry usually benefits hedge funds more than farmers. So hedge funds make less money, yeah, but the impact on farmers is greater price stability, which is a benefit to them. By extension, the implication is that, when hedge fund managers complain loudly about high frequency trading, it's crocodile tears.
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  - TheOtherHobbes 8y ago
    And the irony is these bubble markets invariably collapse, because speculation is not a good foundation for sustainable profit. The opportunity costs of prioritising the financial industry over other activities are almost incalculably huge. Bubbles aren't the only problem. The industry has cannibalised top talent and kept it from working on useful problems, which has created a huge deficit in future potential.

by dm3 8y ago

BurnGpuBurn 8y ago

> The existence of liquid markets is beneficial for the producers and consumers as the price volatility is reduced and hedging becomes easier. Yeah, that's a nice fairy tale. It isn't true though. It's criminally untrue. I can't eat volatile grain, nor hedged grain. I just eat grain. At a price I can afford, today and tomorrow, not bankrupting me in the process. When you're hungry you really don't care about all the financial jargon. You care about price. Traders cannot make a profit if they don't manipulate the price. Simple, if a trader always sold for the same price he bought for he wouldn't make any money. So price goes up, trader has profited from the grain I eat, and has taken a few cents out of my pocket. And I don't even trade. I just live on a dollar day in a shithole somewhere. If everybody bought just the grain they needed to eat, and every grain producer simply put their product on the market for people to buy, without a "liquid global market" and price index, without traders in the middle wanting to profit from it, my food would be affordable. But because the market bets on a price rise in the future, even though the bad weather hasn't materialized yet, my food is unaffordable. In financial, when someone profits, someone hurts. And the one that hurts is almost always not even in the game. > Significantly influencing the price of a commodity [...] is pretty much impossible unless you're acting on behalf of a country or are able to control weather. No. A market can do that by itself. It's what all those terms bullish and bearish and stuff are for. Markets can drive up commodity prices like a rocket. Bad weather coming? "Let's buy all the grain everybody! Guaranteed profit! Just ignore the starving people over there, they'll go away fast enough." And buy the way, all those think tanks and the pentagon predicting a shortage of every natural resource in the near future, that's not going to influence the price at all, right? Great example of how a country manipulates commodity prices btw. Financial trade is just people profiting from people who are worse off to begin with. And don't start about how nowadays regulations are much tighter and all that, it's just not true. Everybody always says that in times when stuff is stable, but as soon as something big happens everybody starts the "nobody could have forseen this" dance followed by the too-big-to-fail entities being saved by the govt and the bill footed to the people.

Applejinx 8y ago
This position is further supported by the reality of real estate speculation: in London, in Silicon Valley, you can count the housing units that are owned by extremely wealthy capital holders, and kept empty because the increase in value will exceed any profits taken from filling them (minus the costs of maintaining them). That's the market actively destroying the fundamental purpose of a good because the dynamics of its value are able to bring more profit than using the good for its existential purpose. If that can happen to housing, it can happen to anything. BurnGpuBurn is absolutely correct here.
- bunderbunder 8y ago
  Real estate is rather different from the commodities markets, though: It's most definitely not a commodity (if you don't count things like mortgage-backed securities, anyway), and the markets are frighteningly illiquid. There are things like futures and options on real estate, but they operate very differently from your average put on hard white winter wheat. There's an argument, not entirely (as far as I can tell) unreasonable, that at least some trading firms - the market makers - are benefitting the small folks in these markets. The argument goes that they do siphon profits out of the market, but it's mostly the profits of other financial firms. What they're ultimately nabbing is profits that come from information asymmetry, and that asymmetry usually benefits hedge funds more than farmers. So hedge funds make less money, yeah, but the impact on farmers is greater price stability, which is a benefit to them. By extension, the implication is that, when hedge fund managers complain loudly about high frequency trading, it's crocodile tears.
  - deleted 8y ago
    [deleted]
    - deleted 8y ago
      [deleted]
- TheOtherHobbes 8y ago
  And the irony is these bubble markets invariably collapse, because speculation is not a good foundation for sustainable profit. The opportunity costs of prioritising the financial industry over other activities are almost incalculably huge. Bubbles aren't the only problem. The industry has cannibalised top talent and kept it from working on useful problems, which has created a huge deficit in future potential.