Speculators - off with their heads!

Do speculators in futures really contribute to "liquidity"? Do they somehow perform a noble function in assisting end users to smoothly hedge their exposure at efficient prices, or is the futures market just a giant casino?

Where would the price of oil and gold be if every single speculator were forced to liquidate their positions right now?

MR - I think you raise two different points there.
Liquidity - I would say yes speculators increase liquidity - they are buyers and sellers
helping the rest of the market to offload or buy whatever it is they want when they want. But theres
nothing noble about it.

As for the price - who are the speculators? Hedge funds maybe, if you factor in all the funds from hedge funds and other speculators yes they may influence price somewhat. But then, if that money wasn't in gold or oil or soyabeans it would be somewhere else influencing something else.
The gold / oil companies themselves aren't passive market participants - their hedges are speculations in themselves. Just cos they own the goldmine or the oilwell don't that make them so special that they aren't speculating?
And apparently, so I hear, in the US many of the speculators in commodities are the farmers themselves.

My ramblings have just brought me to a conclusion - speculators = lifeblood of the markets.
Let them keep their heads.

One area where speculators play such an important role which most people don't focus on or even realise is they keep governments in check.

Can you for example imagine what the government bond market would look like if speculators weren't allowed to bet against all the rosy projections and massive issuance?

For that the world should thank all speculators. An excellent example of this was Soros's attack on sterling, it might have made him a fortune but more importantly he actually forced the government to change some of its economic policies and that in turn really helped the UK during the following years.

However, the average man likes things simple, ie good guys and bad guys, so it's in the interests of many to bill speculators as the bad guys and of course the naive lap it up (not suggesting that there aren't many bad guy speculators, but collectively speculators carry out an important job).

Well put anley. There is also a dangerous sub-theme of protectionism and, even worse, Socialism, associated with anti-speculator positions.

meanreversion said:

Do speculators in futures really contribute to "liquidity"? Do they somehow perform a noble function in assisting end users to smoothly hedge their exposure at efficient prices, or is the futures market just a giant casino?

Where would the price of oil and gold be if every single speculator were forced to liquidate their positions right now?

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I think that "noble" is what they would love to be known as!

The question of whether it is a casino or not has been raised before but I suggest that they (we?) are trying to assist Nº1 in as practical a manner as possible.

tomorton said:

..... even worse, Socialism, associated with anti-speculator positions.

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You are right there. In fact the socialists seem to be getting the upper hand
in many ways at the moment. ..make the thread off with their heads and I would fully agree.

glyder said:

But theres nothing noble about it.

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Speculators help markets become more efficient.
So if there is shortage of some commodity, speculators will hopefully push up the price very quickly motivating producers to make more.

Otherwise it might take longer for the price to increase, leading to shortages and possibly bad things like empty supermarket selves and petrol pumps running dry.

donaldduke said:

Speculators help markets become more efficient.So if there is shortage of some commodity, speculators will hopefully push up the price very quickly motivating producers to make more.

Otherwise it might take longer for the price to increase, leading to shortages and possibly bad things like empty supermarket selves and petrol pumps running dry.

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Effieciency and price discovery..

Speculators are needed, no doubt for me, the alternatives are price cartels (Example - OPEC & majors with oil) or State price control with Bonds (that'll be communism then :cheesy

anley said:

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For that the world should thank all speculators. An excellent example of this was Soros's attack on sterling, it might have made him a fortune but more importantly he actually forced the government to change some of its economic policies and that in turn really helped the UK during the following years.

<snipped>

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I don't believe that having enough money to influence the value of sterling should give one the right to change a democratic state's economic policy. That should be the right of the voters' choice of government.