Submitted by Tyler Durden on 07/05/2011 19:49 -0400
* 10 Year Treasury
* Commodity Futures Trading Commission
* Copper
* Crude
* Crude Oil
* Volatility
The CFTC has just released two new reports looking at volume in various commodity futures and confirming what most have already known, namely that under 10% of daily futures volume in the most popular products comes from Large Trader position changes. The balance or well over 90% in most cases, originates from "daytrading" accounts, or said simply, speculators dominate price formation on the margin for the bulk of products, which also means that longer-term equilibrium levels, those determined by supply and demand, are largely washed out when all the daytrading, and thus short-term pricing, mania is factored in. This also explains why moves such as the recent desperate SPR release by the IEA are generally doomed to failure. The CFTC's Gary Gensler said that "The data shows that, in many cases, less than 20 percent of average daily trading volume results in traders changing their net long or net short all-futures- combined positions. The balance of trading is due to day trading or trading in calendar spreads." This is bad news for the hedging departments of commodity firms which deal with actual physical, and thus try to hedge price swings, as long-term price expectations are largely moot when attempting to predict short and medium-term price fluctuations. In fact, bets, even correct ones, may ultimately add to price volatility if caught in a wrong-way position that faces collateral requirements. As to whether this new data will change the administration's approach to artificially setting prices on key political commodities such as oil and precious metal, all signs point to no. This also means that churning HFT parasites, which are part of the non-Large trader universe are likely the most determining marginal price determinants for the bulk of commodities,and yes, that includes ES and interest rate products as well.
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http://www.zerohedge.com/article/daytraders-account-over-90-volume-price-formation-es-crude-gold-and-silver-futures
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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