"Someone else has to be wrong for you to be right. Not everyone can outperform the market. This is something I don't hear much from the talking heads."
while this is somewhat true, i think it pays to remember how futures markets work, and why they exist in the first place
the reason they were invented, their primary raison d'etre (so to speak) is to allow commercial producers and consumers to hedge and position. we speculators, are just providing liquidity, etc.
if i'm long physical coffee (like i have fields full of it), i'm gonna go short coffee futures. if coffee goes up (iow, it's a losing trade), that's fine with me. because my physical holdings have gone up equally to offset my loss in my futures positions. i'm hedging. the trade itself is losing, but i have protected myself and i'm not in the market to speculate. i'm in the market to protect my product from lower prices.
if i'm a consumer, and i think coffee prices are nice here, i go long futures (take the opposite side of above dood's trade) to protect my price that i will be purchasing over the next few months. if coffee goes up, my futures gains offsets my loss (in that i would have to pay more but now don't have to cause i'm long).
etc.
i realize this is kind of obvious, but i think that we, as speculators, forget that we are just playing around the big commercials that are in the market for entirely different reasons.
while this is somewhat true, i think it pays to remember how futures markets work, and why they exist in the first place
the reason they were invented, their primary raison d'etre (so to speak) is to allow commercial producers and consumers to hedge and position. we speculators, are just providing liquidity, etc.
if i'm long physical coffee (like i have fields full of it), i'm gonna go short coffee futures. if coffee goes up (iow, it's a losing trade), that's fine with me. because my physical holdings have gone up equally to offset my loss in my futures positions. i'm hedging. the trade itself is losing, but i have protected myself and i'm not in the market to speculate. i'm in the market to protect my product from lower prices.
if i'm a consumer, and i think coffee prices are nice here, i go long futures (take the opposite side of above dood's trade) to protect my price that i will be purchasing over the next few months. if coffee goes up, my futures gains offsets my loss (in that i would have to pay more but now don't have to cause i'm long).
etc.
i realize this is kind of obvious, but i think that we, as speculators, forget that we are just playing around the big commercials that are in the market for entirely different reasons.
