Do futures trading and commodity trading distort the spot price in a negative way?

[Laissez Faire]

I'm certain that the benefits of the futures markets far outweigh the negatives, but I don't think there's any doubt either that these markets can be manipulated and so affect the physical markets as well. But I'm no expert...

JPMorgan to pay $920 million for manipulating precious metals, treasury market

 

[bone]

From my experience - the regulated Futures Markets are much more transparent and efficient than the analog cash (spot) markets.

 

[Sig]

Also, the oil price was negative in April 2020.

What would oil prices have been if there were no futures markets? It's far more likely if there are no futures that situations would repeatedly occur where suppliers shipped not only more oil than was needed but so much more that the storage costs were high enough to eclipse the commodity price, meaning anyone taking oil would demand they be paid to do so. Absent any data to the contrary, one could just as easily say that oil prices don't regularly go negative precisely because there is a liquid public futures market.

 

[bone]

I cannot think of a fungible futures contract that isn't subject to arbitrage into the physical analog. When you refer to the small delivery ratio versus the traded volume you are making the mistake of conflating delivered or physically settled futures contracts with active arbitrage during the expiry lifetime (pre first notice day) of the futures contract.

Futures and commodity trading are one of the main way (if not the main way) how spot prices get determined.

But the sheer scale of futures and commodities market and their notional value is mind boggling and almost none of them lead to actual underlying being delivered. This makes me wonder, if there were no futures or commodity trades, wouldn't there be much more demand for the "real thing" and wouldn't it make the price much more volatile and much more higher than current price (as demand for the price appreciation or depreciation of that product is being fulfilled electronically rather than using the underlying asset).

I hear about silver being a manipulated commodity; some people even imply that futures and commodity trading have helped keep speculators invest their money in those assets thus reducing the overall inflation in the broader economy as their money chase may be S&P 500 futures instead of investing that money into the "real" economy.

How accurate are these notions? Do futures and commodity trading really impact the underlying in a negative way? An extension to the question would be, do futures/cryptos etc really help keep a lid on inflation?

 

[RedSun]

Think about the housing market. There is no futures market to speculate. Of course, there is short-term boom and bust. But in general, housing market reflects the supply/demand and cost of building the new houses. It is far costly to trade houses. Even Zillow admitted that it made a mistake entering that market.

 

[Sig]

Think about the housing market. There is no futures market to speculate. Of course, there is short-term boom and bust. But in general, housing market reflects the supply/demand and cost of building the new houses. It is far costly to trade houses. Even Zillow admitted that it made a mistake entering that market.

There actually is - CME Metro Area Housing Index Futures Quotes - CME Group it's just not very widely traded.

The problem is houses aren't a commodity, that would require them to all be the same and trade at the same value per square foot or some other common metric. It's apples and oranges to compare them to an actual commodity like oil.

 

[RedSun]

Everything is commodity. Energy, metals, agriculture, currency and stocks. When they are liquid and easy to trade, we'll get speculative plays.

If we still have to pay $20 to trade 100 GME shares, we'll certainly see much less volatilities and fewer meme stocks.

The same if we'll have to spend $20 to buy a CL contract one side. Most people want easy profit from speculations. They do not care about the fundamentals.

 

[RedSun]

What would oil prices have been if there were no futures markets? It's far more likely if there are no futures that situations would repeatedly occur where suppliers shipped not only more oil than was needed but so much more that the storage costs were high enough to eclipse the commodity price, meaning anyone taking oil would demand they be paid to do so. Absent any data to the contrary, one could just as easily say that oil prices don't regularly go negative precisely because there is a liquid public futures market.

Completely false.

Have you actually traded physical energy commodities? Then you need to look at the physical cash market.

Without the futures market, oil cash market will be cost based. If the CL cost is $35, then energy companies would want to get like $50+ as a fair price. All energy producers can regulate supplies and use storage facilities for short term supply disruptions. So they do not have to sell when the demand was low in 2020. They will never sell CL at negative price. Period. That is a futures trading phenomenal. They also have no desire to hoard CL to get $100.

All those energy commodity extreme prices result from the energy de-regulation. Futures markets distort the physical markets, certainly.

Right now, both CL and NG markets are controlled by the speculators, or the financial players who have extra cash and seek alternative gains, or for diversification purposes. They think CL is a form of real commodity that is good inflation hedge. But in reality, it is not. This is why gold has lost its value as an inflation hedge. Because people realized that gold is now another commodity and central banks have given up of using gold as a store of value.

 

[bone]

I have traded on a Commercial Physical Energy Desk, OTC Energy Derivatives at a HF, and all of the Nymex/CME and ICE regulated products.

Most of what you are saying in this post is subjective gibberish.

Completely false.

Have you actually traded physical energy commodities? Then you need to look at the physical cash market.

Without the futures market, oil cash market will be cost based. If the CL cost is $35, then energy companies would want to get like $50+ as a fair price. All energy producers can regulate supplies and use storage facilities for short term supply disruptions. So they do not have to sell when the demand was low in 2020. They will never sell CL at negative price. Period. That is a futures trading phenomenal. They also have no desire to hoard CL to get $100.

All those energy commodity extreme prices result from the energy de-regulation. Futures markets distort the physical markets, certainly.

Right now, both CL and NG markets are controlled by the speculators, or the financial players who have extra cash and seek alternative gains, or for diversification purposes. They think CL is a form of real commodity that is good inflation hedge. But in reality, it is not. This is why gold has lost its value as an inflation hedge. Because people realized that gold is now another commodity and central banks have given up of using gold as a store of value.

 

[RedSun]

I have traded on a Commercial Physical Energy Desk, OTC Energy Derivatives at a HF, and all of the Nymex/CME and ICE regulated products.

Most of what you are saying in this post is subjective gibberish.

I see whatever you said here is BS. Who knows about your claims?

The physical commodities are not even regulated. You can't even back up yourself....