On Mar 24, 8:44*am, Han wrote:
Kurt Ullman wrote innews:HsednRKmoOIBI_DSnZ2dnUVZ_vydnZ2d@earthlink. com:
In article ,
*"Robert Green" wrote:
commodities markets went from $13 billion to $300 billion. Last year,
27 barrels of crude were being traded every day on the New York
Mercantile Exchange for every one barrel of oil that was actually
being consumed in the United States. *source:
http://www.cbsnews.com/2100-18560_162-4707770.html
* *Since oil is fungible and a world-wide market, *this is a bogus
* *stat.
The REALLY interesting one would how many are traded worldwide versus
how many are use worldwide.
I had to look up fungible, and I'm not sure I fully understand anything
more than a version of "easily substituted". *Statistics are always
suspect, since we usually don't know all the premises and limitations to
the calculations. *But bogus is too strong a word, IMO.
Nevertheless, since the US share of the world oil market is in the order
of 25%, substantially more than the ~4% as the 27-fold multiple of trades
over uses of 1 barrel suggests, the much repeated selling of that same
barrel of oil seems excessive. *In the aggregate and on average such
trading cannot possibly reduce the average price of oil, since every
trade costs something.
So, yes the trading functions a bit to hedge and keep the prices in a
free market range, but that range is increased by the speculation.
And your definitive proof for that would be? Crickets.
Have you ever traded a single futures contract? I can just as
easily make a case that speculation decreases the range.
Again, there are speculators ON BOTH SIDES, LONG and
SHORT. You raised the example of rumors moving the
market. Let's say oil was at $100 and some rumor starts
moving it to $103. There are speculators that have been
around for decades. They know that most of these rumors
are just that, rumors. So, seeing it move up $3, they now
have an opportunity to short it, expecting it to move back
down. Later in the day, the price settles back to $102
and the speculator covers the short, taking his profit.
That action lessens the price move. It's also what a huge
amount of that volume is all about.
Regarding daily volume in futures, you've got it all wrong.
First, the CBS comparison of
futures volume versus US usage, as Kurt pointed out, is totally
bogus. Oil is a worldwide market, people use oil all over the
world. Participants in the US futures market are all over the
world and they will continue to be, unless we let you drive
them out. In which case, the business will just move to a
more friendly country where perhaps it will be less regulated.
How would you like that?
If you compare the futures volume to worldwide production,
about a weeks worth of contracts change hands each day.
So, for CBS, the correct ratio is not 27:1 but more like 7:1.
Now it's kind of odd that someone who
AFAIK has never
traded a single futures contract of any kind would know
what the "right" volume should be. But tell us, what is
the right number from your magic ball?
What you have backwards here is that volume is a bad
thing. It's a very good thing that leads to efficient pricing
and liquidity. Let's say you need to sell 1000 shares of
a stock first thing Monday morning. Which market would
you rather that stock be in? The pink sheets of stocks
where if you're lucky, they might trade a few thousand
shares a day? Or would you want it to be one of the
NASDAQ stocks where they do millions of shares a day?
In the latter case, you could enter a market order, have
it filled in a second at a fair price. Try that in the other
market and see what happens. The more activity you
have in a trading environment, the better.