Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
its called commodities trading. you make money on speculation. very short explanation. do you want to control people from making money? for what its worth many thousands of individuals commodity trade. ALOT of those profits are paid to many retirement funds. do you want goverment controlled prices? maybe ration cards would work for you? have you checked the price of milk lately?
mark6052;3123935]. do you want to control people from making money?
Nope
Quote:
for what its worth many thousands of individuals commodity trade.
True
Quote:
ALOT of those profits are paid to many retirement funds.
True
Quote:
do you want goverment controlled prices?
Nope
Quote:
maybe ration cards would work for you?
Not for me, thanks.
Quote:
have you checked the price of milk lately?
Bought a couple of gallons yesterday as a matter of fact
What I am looking for is an elaboration of what the news commentator was talking about and if there was any possible way to intelligently manage the situation regarding speculating vs supply/demand.
The article points out that if there were no speculators oil prices would probably be 10-15 dollars lower. Currently there's an over supply of gas in the world economy that is not being consumed. Theorhetically, this should bring the price of crude oil down, because there are not enough buyers in the market. However, due to the structure and way oil is priced on commodity exchanges this natural economic effect is not taking place, because of speculators.
The author does not seem to have a problem with producers and manufactures of oil speculationg on cost, but he does have a problem with hedge funds getting in for very cheap and speculating on oil contracts. They are distorting price signals in the real oil markets and creating a false demand in the commodity markets, that is increasing price.
He advises, the best policy would be to raise the barrier to entry, via raising margin on these individuals. It would make it too pricey for them to continue to speculate and he believes prices would drop back to normal.
Now, because i'm not a commodities trader i'm not extremely familiar with the process, but i do trade equities, so i'm sure there are some similarities in the way price operates. The way i view oil prices is as follows.
YOu have two components currently working to either increase price or inflate price
Supply and Demand
Oil----->----Manufactured---->------Distributed---->----To Various Countries-------- = based on supply and demand a price is set
Commodity Exchanges------>Offer Contracts on Margin------->Speculators bid up the prices, based on where they think prices will be in 6 months----->because of low margin many are getting in-------> this creates a false, demand for oil contracts--------->thus helping to rise the price of oil------>-above what is actually being demanded in the real market
Speculators have always bee the bane of any market. They allow gambling with borrowed money by a few people that drive price bubbles. Borrowing money for stock purchases in the twenties fueled the speculation that broke the market in1929 and speculating with low down payment mortgages fueled the recent real-estate bubble. I think that requiring the speculators to put up all the money they are betting from their own funds can control speculation. Speculators move money around without creating any wealth and are parasitic on the market. All short-term investment should be curtailed or eliminated to prevent market distortions.
I get it about the speculating aspect, but would you not agree there is also a political aspect to it as well?
Right now we are having major problems with the governments of most of the oil producing countries. As such, we seem to have very little leverage in placing whatever pressure or goodwill we may bear on keeping oil prices down. When some of these government openly state they are going to stop selling oil directly to us or any country that is allied with us it leads into a sort of frenzy (probably a poor choice of words) that in itself forces prices higher as we end up in a position to sort of say, "look, we'll pay whatever you want to keep the oil flowing". That also is a small part of speculation I suppose.
The article points out that if there were no speculators oil prices would probably be 10-15 dollars lower. Currently there's an over supply of gas in the world economy that is not being consumed. Theorhetically, this should bring the price of crude oil down, because there are not enough buyers in the market. However, due to the structure and way oil is priced on commodity exchanges this natural economic effect is not taking place, because of speculators.
The author does not seem to have a problem with producers and manufactures of oil speculationg on cost, but he does have a problem with hedge funds getting in for very cheap and speculating on oil contracts. They are distorting price signals in the real oil markets and creating a false demand in the commodity markets, that is increasing price.
He advises, the best policy would be to raise the barrier to entry, via raising margin on these individuals. It would make it too pricey for them to continue to speculate and he believes prices would drop back to normal.
Now, because i'm not a commodities trader i'm not extremely familiar with the process, but i do trade equities, so i'm sure there are some similarities in the way price operates. The way i view oil prices is as follows.
YOu have two components currently working to either increase price or inflate price
Supply and Demand
Oil----->----Manufactured---->------Distributed---->----To Various Countries-------- = based on supply and demand a price is set
Commodity Exchanges------>Offer Contracts on Margin------->Speculators bid up the prices, based on where they think prices will be in 6 months----->because of low margin many are getting in-------> this creates a false, demand for oil contracts--------->thus helping to rise the price of oil------>-above what is actually being demanded in the real market
That is my take on it
This is a very good analysis of what is happening at the investor level. Remember that when Bush was elected, the very first thing he did was de-regulate oil future trading. This has allowed speculators to drive up the price without good reason. At the end of the day, $4 gas isn't the fault of speculators, OPEC, Iran, etc. Its the fault of our greedy oil President who is making a killing right now off these prices.
As long as we don't get McCain, I think either Democrat has a decent shot a fixing it.
I get it about the speculating aspect, but would you not agree there is also a political aspect to it as well?
Right now we are having major problems with the governments of most of the oil producing countries. As such, we seem to have very little leverage in placing whatever pressure or goodwill we may bear on keeping oil prices down. When some of these government openly state they are going to stop selling oil directly to us or any country that is allied with us it leads into a sort of frenzy (probably a poor choice of words) that in itself forces prices higher as we end up in a position to sort of say, "look, we'll pay whatever you want to keep the oil flowing". That also is a small part of speculation I suppose.
Speculation is part of it. It's not entirely supply and demand since oil inventories are fairly high at the moment. But everyone seems to be ignoring one obvious culprit: inflation. It's not just energy prices that are skyrocketing, but nearly all commodities, including precious metals. When nearly all commodities move up sharply together, you can usually count on one underlying factor: inflation. It just happens to be hitting oil particularly hard because a) all oil worldwide is bought and sold with U.S. dollars, and when the "oil currency" sinks in value, it takes more of them to buy a barrel; and b) demand for oil is highly inelastic so it is particularly sensitive to inflation.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I am no economist, but to me commodity trading seems a lot like gambling.
