Trading FX is ethical, trading commodities isn't

[DashRiprock]

Seeing it is said that 95% of traders lose.

Why don’t we do the world a favour and all go long on wheat tomorrow morning?

buy wheetabix instead, it puts hairs on your chest!

 

[DionysusToast]

Is this a serious question?

"Trading FX is ethical, trading commodities isn't"

Do you think "the poorest 25%" would be better off if commodities were not freely traded? Are you proposing price controls (that ALWAYS works ), and if so, how would this function in practice?

How is the price to be set? Should people be forced to buy and sell at a price not of their choosing?

Sigh.....

Supply & demand will set prices in the absence of a futures market. Your argument appears to be that there are 2 choices - price fixing and futures markets.

The theory of futures markets is that they create price stability. In actual fact, there is plenty of evidence that they do the reverse. Look at oil price fluctuations. They fluctuate because of 'supply & demand' for futures contracts (although strictly speaking there is infinite supply), not supply & demand for oil itself.

As futures markets create price instability, they cause the problem they are supposed to resolve. Hedging becomes necessary because of the instability created. Futures markets are a tax on the underlying commodity. It is a huge money spinner for the people running the markets. Sure - people that hedge lose less money than if they didn't - is that what constitutes a free market nowadays?

Here is a question I posed on the forum a while back:

"Would we all be happy for the very trustworthy Goldman Sachs to run a futures market to which the price of future home supply would effectively be pegged ?"

The Onion Futures Act (7 U.S.C Chapter 1 § 13-1]) is a United States law banning the trading of futures contracts on onions. It was passed on August 28, 1958, and remains in effect as of 2010[update].

This law is notable as the first and only ban on the trading of futures contracts of a specific commodity in United States history, and as a unique modern case with which to study the effects of the existence of an active futures market on commodity prices. In particular, proponents of futures markets often claim that they serve to stabilize otherwise volatile commodity supplies (and thus, prices) by providing a market-driven consensus mechanism for future price estimation. The conclusions drawn in subsequent studies of the effects of the Act upon price volatility have been mixed.

Still - they tried to bring it back in...

Mon, 04/19/2010 - 00:11 EDT The financial reform bill being considered in the US Senate aims to impose stricter supervision of all derivatives and prohibit futures based on box-office receipts and the price of onions

The more markets created, the more money the people running the markets skim off the top.

Wed, 04/21/2010 - 16:55 EDT A proposed ban on betting on movie box office receipts took one step closer to becoming law. A U.S. Senate committee on Wednesday passed a financial regulatory reform bill that supports Hollywood in outlawing the trading of futures contracts based on predicted movie ticket sales.

More here : http://www.trade2win.com/boards/general-trading-chat/86726-minus-sum-game-mk-ii-derivatives.html

 

[counter_violent]

Change, yes. Trend, no. The consequences of believing models that are internally inconsistent but are nonetheless worth using as the basis of making major economic decisions should cause everyone pause. Science, like any other profession, has its share of scoundrels.

Who funds all this climate science...oh yep govt's with vested interests.

 

[wackypete2]

The theory of futures markets is that they create price stability. In actual fact, there is plenty of evidence that they do the reverse. Look at oil price fluctuations. They fluctuate because of 'supply & demand' for futures contracts (although strictly speaking there is infinite supply), not supply & demand for oil itself.

As futures markets create price instability, they cause the problem they are supposed to resolve. Hedging becomes necessary because of the instability created. Futures markets are a tax on the underlying commodity. It is a huge money spinner for the people running the markets. Sure - people that hedge lose less money than if they didn't - is that what constitutes a free market nowadays?

I'm in complete agreement. Futures trading was created on the theory that it would stabilize prices which was correct at one time. The futures markets and exchanges were never designed to be traded by enormous hedge funds or large institutional speculators who can effect the underlying price simply by taking on huge positions never intending for delivery.

Peter

 

[DashRiprock]

my $0.02 is that there shouldn't be a question of what it is or isn't ethical to speculate on... but there is a difference between ethical and unethical regulation.

what I mean is things like the leverage available, cash settled instead of physically settled, routes to market and things like that.

 

[Barramundi]

Errrr...No it wasn't sunshine...Errr...no-one has even claimed that it is sunshine...Errr...not even Al Gore or Jim Hansen sunshine

Yes it was. According to U.S. scientists, 2010 year tied with 2005 and 1998 as the warmest year on record for global surface temperature. This has been widely reported, here is one of many links http://topnews360.tmcnet.com/topics...3/137405-un-2010-tied-warmest-year-record.htm.

Errr...even if it was errr sunshine...which errrr it isn't sunshine...errr...the "man-made" element of my post is quite important...sunshine...the contribution of mankind's activities to climate change is...err sunshine...the subject of err sunshine...some debate to put it errr mildly sunshine.

Regarding the man-made component, 'most atmospheric scientists attribute the change to carbon dioxide and gases released into the air by gasoline–burning engines and other industrial processes'. There is always going to be those that disagree, and that are going to debate it even in the face of strong evidence. But you cannot possibly describe that the issue of "catastrophic man-made climate change" is a made up non-problem for a "FACT", as you did, and retain any credibility on this topic. Debatable perhaps, but certainly not fact.

I do however apologise for and regret the condescending tone and the word 'sunshine' that I used in the earlier post. I should have made my point without that.

 

[wackypete2]

my $0.02 is that there shouldn't be a question of what it is or isn't ethical to speculate on... but there is a difference between ethical and unethical regulation.

what I mean is things like the leverage available, cash settled instead of physically settled, routes to market and things like that.

Good question but difficult to answer. IMO, most regulations in the US are heavily skewed to favor large players which would appear to be unethical regulation.

Peter

 

[DionysusToast]

Surely trading anything is as likely to drive its price down as up? (I'm not saying low prices are better for the worst off than high prices)

If speculation continually drove the price of wheat down, farmers would move to another crop. This would end up driving wheat prices up... and causing a worldwide shortage of wheat.

We have to remember that someone has to produce this stuff and if prices are driven down, they will reduce production.

Of course, one of the reasons we are seeing changes in food prices is the amount of farming given to bio fuels. It's not just the futures markets impacting these prices.

On the subject of it being ethical or otherwise. My opinion is that the market itself is not ethical. It is a tax on commodities with no real benefit to any of the people forced to play. As for speculating on that market, I am not sure this is unethical but I haven't pondered it too much.

 

[Black Swan]

Sigh.....

Supply & demand will set prices in the absence of a futures market. Your argument appears to be that there are 2 choices - price fixing and futures markets.

The theory of futures markets is that they create price stability. In actual fact, there is plenty of evidence that they do the reverse. Look at oil price fluctuations. They fluctuate because of 'supply & demand' for futures contracts (although strictly speaking there is infinite supply), not supply & demand for oil itself.

As futures markets create price instability, they cause the problem they are supposed to resolve. Hedging becomes necessary because of the instability created. Futures markets are a tax on the underlying commodity. It is a huge money spinner for the people running the markets. Sure - people that hedge lose less money than if they didn't - is that what constitutes a free market nowadays?

Here is a question I posed on the forum a while back:

"Would we all be happy for the very trustworthy Goldman Sachs to run a futures market to which the price of future home supply would effectively be pegged ?"



Still - they tried to bring it back in...



The more markets created, the more money the people running the markets skim off the top.



More here : http://www.trade2win.com/boards/general-trading-chat/86726-minus-sum-game-mk-ii-derivatives.html

Thanks DT..

 

[Black Swan]

I'm in complete agreement. Futures trading was created on the theory that it would stabilize prices which was correct at one time. The futures markets and exchanges were never designed to be traded by enormous hedge funds or large institutional speculators who can effect the underlying price simply by taking on huge positions never intending for delivery.
Peter

Bingo.

 

[new_trader]

The futures markets and exchanges were never designed to be traded by enormous hedge funds or large institutional speculators who can effect the underlying price simply by taking on huge positions never intending for delivery.

Peter

The commodity must still be delivered to somebody therefore it still needs to be produced and either stored or delivered. This why there is contango and backwardation in futures markets. It is incompetent governments who use speculators as scapegoats for their reckless policies. I'm sure commodity prices would be much more stable if they were priced in gold rather than $US.

 

[meanreversion]

I'm sure commodity prices would be much more stable if they were priced in gold rather than $US.

Very interesting comment (although still waiting for proof that markets are non-random ).

I was recently shown a graph of S&P rebased in gold over the last five years.. if gold is a "real" currency (some debate on that I know), then the recent rally in stocks is a pure mirage.

 

[new_trader]

Very interesting comment (although still waiting for proof that markets are non-random ).

I was recently shown a graph of S&P rebased in gold over the last five years.. if gold is a "real" currency (some debate on that I know), then the recent rally in stocks is a pure mirage.

http://www.goldcore.com/homepageVideo.php

You will have to prove it to yourself

 

[DionysusToast]

Would we all be happy for the very trustworthy Goldman Sachs to run a futures market to which the price of future home supply would effectively be pegged ?

 

[scose-no-doubt]

I've read nothing but tripe in this thread.
Commodity producing countries are subsidised by developed countries by way of foreign "aid" in order to keep prices low and by proxy workers wages low and the economy of the producer country in the sh1t. It is largely agreed between corrupt governments.
Discussing the ethical issues of exchange trading of commodities is like discussing the symptom of the disease. Who do you think has a harder time, Joe Public who is worried about how to pay is sky bill or whether he'll have to get the bus to work due to the extra 10p a litre or Jogogo Npubli who is getting beaten because his family didn't dig enough gold out of rocks today?
Silly thread.

 

[DashRiprock]

...

I'm sure commodity prices would be much more stable if they were priced in gold rather than $US

...

or change the denomination from dollars per 1,000 Barrel (eg oil) to Barrels per $1,000 Dollars and mark to market in Barrells. So I have to find an oil producer to ring-fence my margin requirement in barrels rather than post US$ collateral.

 

[DionysusToast]

Scose - you do realise that it's the commodity producers in Europe and the US that are subsidised, right?

Developing countries are NOT subsidised with aid in the way you imply, they are mostly given loans and this is not to commodity producers. The reason third world commodity producers cannot compete with first world is the first world subsidies.

Of course, countries facing mass starvation do get aid but this is mostly the result of internal conflicts.

This however has nothing to do with Futures markets which exist purely for the benefit of those that run them.

 

[scose-no-doubt]

So the interview I saw with a former finance minister from an african country when he was discussing economic foreign aid, specifically how economic aid was used to subsidise commodity production, must have been staged then.


As of financial year 2004 the sixteen highest recipients of US Foreign Aid were;[7]
Rank Country Billions of Dollars received in 2004 Aid Per Person Recipient
1 Iraq 18.44 $625
2 Israel 2.62 $365
3 Egypt 1.87 $23
4 Afghanistan 1.77 $61
5 Colombia 0.57 $12
6 Jordan 0.56 $94
7 Pakistan 0.39 $2
8 Liberia 0.21 $56
9 Peru 0.17 $6
10 Ethiopia 0.16 $2
11 Bolivia 0.15 $16
12 Turkey 0.15 $2
13 Uganda 0.14 $4
14 Sudan 0.14 $3
15 Indonesia 0.13 $1
16 Kenya 0.13 $3

Why do you think that the US gives these loans? To help the countries to develop economically? For infrastructure, perhaps?

 

[Jack o'Clubs]

So the interview I saw with a former finance minister from an african country when he was discussing economic foreign aid, specifically how economic aid was used to subsidise commodity production, must have been staged then.

A couple of choice facts from a recent Action Aid campaign:

• The total amount of support to agriculture in developed countries now stands at over $300 billion per year.

• $300 billion would pay for clean water for everyone in the world ($170 billion), education for all ($6 billion), basic health and nutrition for all ($13 billion) and pay off the public debt of the most heavily indebted countries ($90 billion).

• Each tonne of wheat and sugar from the UK is sold on international markets at an average price of 40% and 60% below the cost of production respectively (ie, it is dumped).

• Every wheat farmer in the EU currently receives a subsidy of approximately £35 per tonne.

• In the UK, farm subsidies cost every individual at least £50 a year. Agricultural support has also inflated consumer prices, and the approximate cost to each UK citizen is an additional £50 each year.

• "In the Rasoolpur village of Pakistan, Mithan, a widow, cultivates two acres of wheat, which provides for her and her three children. But Mithan is struggling to cope after the Pakistan government cut its support for farmers because of pressure from the Asian Development Bank. ‘Government officials didn’t come to the village looking to buy wheat at the official price, as they normally do. I now can’t arrange schooling for my children’, Mithan told ActionAid.Mithan, like millions of small-scale, resource-poor farmers in Pakistan receives no subsidy to help her produce wheat. It’s a very different picture for the EU’s large-scale, resource-rich farmers."

Frankly the EU's Common Agricultural Policy is a disgrace, and worth remembering next time you hear some self-righteous EU bureaucrat banging on about the dangers of speculators.

 

[new_trader]

Frankly the EU's Common Agricultural Policy is a disgrace, and worth remembering next time you hear some self-righteous EU bureaucrat banging on about the dangers of speculators.

Yes, what I should have said was incompetent corrupt fascist Keynesian Governments.