The role of speculators in commodity trading
Commodity trading floors go back a long way and have been around for over a hundred years, even before currency trading.
Commodity trading head is in Chicago, when the Chicago Board of Trade and the Chicago Mercantile Exchange was founded. The purpose of the exchanges was to create futures markets to benefit both the buyer and seller and to avoid either party to manipulate and control prices. Commodity futures are used for the purposes for which they were developed; to help in stabilizing prices.
What makes commodity trading interesting is that we use commodities in our daily life.
Gold, Crude Oil, Natural Gas, Copper etc are a part of our day to day activities.
Contribution of speculators in commodity trading
Commodity markets in recent times have become the home to a third type of player: the speculator. Speculators don’t produce goods, and they don’t actually want those goods at delivery time. They are simply buying and selling these products mostly intraday to make a profit on the constant fluctuations in prices.
Speculators enter the futures market when they anticipate prices are going to change.
These savvy traders provide liquidity when either producers or end-users had no interest in trading at a particular price. They possess a deep understanding of the products and how to price these instruments quickly and accurately. Overall, they provide a valuable function to the daily activity on the exchange floor.
In short, speculators are the market participants who utilize short-term strategies in order to outperform traditional long-term investors.
What kind of trader are you, what questions do you have regarding commodities and how to trade them?