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> And it may be that it's simply not possible to have something like futures trading without this systemic vulnerability when the market is small enough for an
by brazzy 7y ago
> And it may be that it's simply not possible to have something like futures trading without this systemic vulnerability when the market is small enough for an individual to attempt such a scheme.
That is very definitely not true, as shown by the fact that there are many, many commodities where futures trading is allowed and nothing like this has ever happened.
In fact, the article is frustratingly incomplete concerning how it was really possible in the first place.
Because there must be something really dysfunctional in how a futures market is set up to allow this scenario.
Normally, if someone tries to buy up all the futures, the price would go through the roof, especially once people notice that that is what's happening. The scheme would fail at that point because you'd run out of money.
I also don't really understand how it was possible for the market to be flooded to the point that the produce was dumped en masse. It's not like people had produced more onions than normal or that they'd all go bad at the same time.
- Arnt 7y agoSomething similar has happened only a few years ago, well-publicised. Many people noticed the odd pricing. Some of the people who did notice the anomalies misunderstood their cause, and decided on a course of action that didn't lead to any correction (well, except for bankrupting a few misunderstanders). The key is that someone will notice, but that someone need not necessarily understand and act appropriately. (What happened was that one large company bought shares, futures and options in another, which drove the price of those futures and options up. Hedge funds noticed that the futures and options were too expensive, and decided to arbitrate. When the first eventually disclosed that it had enough futures and options to acquire the second, a whole flock of hedge funds were caught with obligations to meet and no means to meet them.)
- brazzy 7y agoI'm pretty sure you mean the attempted takeover of Volkswagen by Porsche in 2008, but what you're writing is pretty wrong and has very little to do with the discussion about futures. - There were no future contracts involved, at all. Options are a different thing. - Porsche didn't need to "corner the market", i.e. buy all VW stock. They only needed 75% to gain certain supermajority rights. - There wasn't really anyone "noticing anomalies" and misunderstanding them, or trying to "arbitrate" a "too expensive" stock. The VW stock price had been going down as a result of the financial crisis, and a number of traders had shorted it in the expectation that it would go down further. - Porsche actually lost big in the whole affair; they never reached the 75% because they did run out of money, and the loans they had to take on to do it eventually broke their back. In the end, they were acquired by VW, not the other way round.
- pjc50 7y agoIt's quite difficult to do, because it requires inflexible enough production and a storable enough product. There have been attempts in silver: https://en.wikipedia.org/wiki/Silver_Thursday https://en.wikipedia.org/wiki/Silver_Thursday and a weird quasi-corner in aluminium: https://www.bloomberg.com/opinion/articles/2014-11-20/the-goldman-sachs-aluminum-conspiracy-was-pretty-silly https://www.bloomberg.com/opinion/articles/2014-11-20/the-go...
- danharaj 7y agoMaybe you're wrong and markets can be fucked up a lot easier than you think they can?
- betterunix2 7y agoOne would think the recent swing in WTI crude oil futures contract prices into deeply negative territory (while Brent futures remained positive) would be all the evidence a person needs to draw that conclusion...
- brazzy 7y agoOnly if that person doesn't understand how all that works and why the current situation is an absolute extreme, and there are some pretty significant differences between WTI and Brent futures, namely in where and how they're delivered.