3 ms·

If you have massive buy/sell orders between finance bro speculators - how does that equate to real supply/demand for the underlying commodity?

• jpgvm 3y ago
  There is a finite supply of the underlying, each sold future equates to agreed upon future deliveries. So in reality the number of contracts sold (not traded) does equate 1:1 with demand for the underlying. When that doesn't hold true you will end up with Failure To Deliver (FTD) which causes Very Bad Things™. Generally speaking though commodities markets aren't rigged in the way that people complain about in some other markets but they are subject to pretty violent volatility in the face of uncertainty. This is largely due to pretty fixed supply with highly variable demand. i.e I can't just shut off all the oil wells right now and return ships currently on-route to energy exchanges and even if I could I wouldn't have the storage. Storage is also an interesting one because storage costs money and was pretty much why oil contracts went negative for a short period.
  • RandomLensman 3y ago
    Most future positions are closed out or rolled before delivery - so open interest can easily exceed demand for the underlying.
  • yunohn 3y ago
    All of what you say could be true - I just find it hard to believe given IRL finance bros are constantly trading and profiting off of futures/commodities trading without a single worry of the underlying commodity.
    • hhmc 3y ago
      If your claim is that 'finance bros' (perhaps let's call them commodity traders) don't consider anything about the fundamentals of the underlying, then you simply have no meaningful understand of trading.