4 ms·
> "What’s the person on the other side of the trade up to?" The same thing: hedging/insuring against price changes. The supplier (ultimately, a farmer, steel m
by Reason077 4y ago
> "What’s the person on the other side of the trade up to?"
The same thing: hedging/insuring against price changes. The supplier (ultimately, a farmer, steel mill, gold miner, electricity generator, etc) is getting a guaranteed price for the commodity they're selling, reducing risk.
- JumpCrisscross 4y agoVirtually no hedging happens between natural buyers and sellers precisely because they approach the market at different times, and don’t have the in-house pricing expertise to discern good and bad bids and offers ex ante. This is why, absent financial participants, the natural participants get hosed. (And why they use financial markets versus direct purchases and sales.) Again, these aren’t theoretical considerations, we’ve always had naïve Puritanical elements seeking to ban speculation, and in some assets and jurisdictions they have succeeded. Reducing market participation has never worked.