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Futures have substantial utility for anyone who needs to hedge the underlying commodities. What underlying economic purpose is served by Bitmex? I don’t exclud

by graeme 5y ago

Futures have substantial utility for anyone who needs to hedge the underlying commodities. What underlying economic purpose is served by Bitmex? I don’t exclude the possibility of such a purpose eventually but it is silly to pretend the two cases are both currently economically useless.

gruez 5y ago
> Futures have substantial utility for anyone who needs to hedge the underlying commodities. 1. CME has futures for much more than just commodities. They have futures for S&P 500, interest rates, and cryptocurrencies (lol) 2. The daily volume for corn futures is 350,000 contracts[1]. Each contract corresponds to 5,000 bushels, which means 1.75 billion bushels worth of corn are being traded daily. On the other hand the US only produces 14.18 billion bushels yearly, and the world only produces 44.64 billion bushels[2]. Given the large disparity between trade volumes and actual production, I doubt most of the trading activity are from people "who needs to hedge the underlying commodities". [1] https://www.cmegroup.com/markets/agriculture/grains/corn.html https://www.cmegroup.com/markets/agriculture/grains/corn.htm... [2] https://www.worldofcorn.com/charts/world-corn-production_21.svg https://www.worldofcorn.com/charts/world-corn-production_21....
- graeme 5y ago
  All the trading in corn futures aids in liquidity and price discovery. Things which seem meaningless until you actually try a thinly traded trade and find that you can lose 30% simply from buying something on the bid-ask spread. Maybe someday we’ll have a recession caused by excessive leverage in corn futures but so far the activity you mentioned has seemed fairly harmless while producing much liquidity.
  - imtringued 5y ago
    I think you forgot to mention something very fundamental: You cannot transfer physical commodities through digital means. Stocks and money can be transferred digitally. When you want to sell your commodity you do not send it to a central depot that stores all corn. You tell people that they can buy your corn and you deliver it when the commodity future reaches its expiry date. Thus, there is no commodity trade without futures. That excuse doesn't apply to financial assets.

by graeme 5y ago

gruez 5y ago

> Futures have substantial utility for anyone who needs to hedge the underlying commodities. 1. CME has futures for much more than just commodities. They have futures for S&P 500, interest rates, and cryptocurrencies (lol) 2. The daily volume for corn futures is 350,000 contracts[1]. Each contract corresponds to 5,000 bushels, which means 1.75 billion bushels worth of corn are being traded daily. On the other hand the US only produces 14.18 billion bushels yearly, and the world only produces 44.64 billion bushels[2]. Given the large disparity between trade volumes and actual production, I doubt most of the trading activity are from people "who needs to hedge the underlying commodities". [1] https://www.cmegroup.com/markets/agriculture/grains/corn.html https://www.cmegroup.com/markets/agriculture/grains/corn.htm... [2] https://www.worldofcorn.com/charts/world-corn-production_21.svg https://www.worldofcorn.com/charts/world-corn-production_21....

graeme 5y ago
All the trading in corn futures aids in liquidity and price discovery. Things which seem meaningless until you actually try a thinly traded trade and find that you can lose 30% simply from buying something on the bid-ask spread. Maybe someday we’ll have a recession caused by excessive leverage in corn futures but so far the activity you mentioned has seemed fairly harmless while producing much liquidity.
- imtringued 5y ago
  I think you forgot to mention something very fundamental: You cannot transfer physical commodities through digital means. Stocks and money can be transferred digitally. When you want to sell your commodity you do not send it to a central depot that stores all corn. You tell people that they can buy your corn and you deliver it when the commodity future reaches its expiry date. Thus, there is no commodity trade without futures. That excuse doesn't apply to financial assets.