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It is fascinating that you say you don't understand how something could be possible and that you are weary of articles that blame X for everything and yet you c

It is fascinating that you say you don't understand how something could be possible and that you are weary of articles that blame X for everything and yet you can't be bothered to spend 10 minutes to read an entire article. It shouldn't be so hard to see that a round trip trade where one firm sells a commodity to another and then buys it right back at the exact same price would have some sort of influence on the market. If it did not, what would be the point of such a trade? A large enough group of firms could effectively support whatever price they wanted assuming the market was reasonably rational. Because the underlying asset never changes hands, the pricing is naturally suspect. Futures trading in an non-manipulated market is far from riskless but if you can manipulate the market over the short term of the contract (say 6-18 months), it certainly can be effectively riskless. There are many more points of interest in the article that you were unwilling to read but very willing to comment on.

Tichy 17y ago
"It shouldn't be so hard to see that a round trip trade where one firm sells a commodity to another and then buys it right back at the exact same price would have some sort of influence on the market. If it did not, what would be the point of such a trade? " Please explain then, how could it influence the price? Maybe it can fool some "technical traders", but that would hardly be a sustainable trillion dollar market? By shifting the stuff around, they don't change the supply or the demand, so what use is it? I can see how it is useful for their accounting tricks, but that is a very old trick. I would have expected traders to adapt to that scheme by now.
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yummyfajitas 17y ago
Repo agreements (the sell and then buy later at the same price contract) allow market makers to add liquidity to the market without facing a price risk. They also allow commodity holders to obtain short term financing for other investments. If you have oil you are holding for the long haul, but want to engage in a short term investment requiring cash, you do a repo. You enter into a repo agreement, sell the oil, invest the cash you get, cash out and rebuy the oil at a fixed price. Incidentally, if you want to criticize repos, your first target should be the Fed, who issues more repos/reverse repos than Goldman Sachs.
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Tichy 17y ago

"It shouldn't be so hard to see that a round trip trade where one firm sells a commodity to another and then buys it right back at the exact same price would have some sort of influence on the market. If it did not, what would be the point of such a trade? " Please explain then, how could it influence the price? Maybe it can fool some "technical traders", but that would hardly be a sustainable trillion dollar market? By shifting the stuff around, they don't change the supply or the demand, so what use is it? I can see how it is useful for their accounting tricks, but that is a very old trick. I would have expected traders to adapt to that scheme by now.

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yummyfajitas 17y ago

Repo agreements (the sell and then buy later at the same price contract) allow market makers to add liquidity to the market without facing a price risk. They also allow commodity holders to obtain short term financing for other investments. If you have oil you are holding for the long haul, but want to engage in a short term investment requiring cash, you do a repo. You enter into a repo agreement, sell the oil, invest the cash you get, cash out and rebuy the oil at a fixed price. Incidentally, if you want to criticize repos, your first target should be the Fed, who issues more repos/reverse repos than Goldman Sachs.

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