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The Manipulation and Distortion of The Stockmarket

What I look at in this article is how equitable the market place is for Futures and stock trading in commodities raising the question of how equal are the opportunities ?  The idea of protection feature strongly in economic discussions and can cover a multitude of sin from obstruction of data resulting in imperfect information to insider trading, to barriers created around the market place and red tape.  Understanding what manipulation and distortion happens in the marketplace is a critical issue if we are to understand the existing influences on the food prices.

Like bank traders, fund managers often use computerized high frequency ‘algorithmic trading’ to make gains from miniscule price movements. High-frequency trading is based on information that reaches insiders a fraction of a second ahead of everyone else – just long enough to cash in, while raising costs for ordinary investors. Michael Lewis wrote Flash Boys in which he describes the construction of a secretive 827-mile cable running from Chicago to New Jersey which would reduce the journey of data from 17 to 13 milliseconds. The speed of data is a major theme in the book; essentially, the faster the data travels, the better the price of the trade. Read more

What Are Futures and Derivatives

A ‘Future’ is an agreed contract for the sale or purchase of an asset, currency or commodity at a future date. This financial instrument came about to provide a kind of insurance to the producers so that they did not go out of business when there might be a poor harvest, for example.

After intense lobbying, the US Commodity Futures Trading Commission relaxed the rules surrounding the market in 1999. Banks such as Barclays, Deutsche Bank and JP Morgan, could now hold as large a ‘position’ in food futures as they liked. Previously they could not. A traders ‘position’ is the balance of (long futures contracts) ‘promises to buy’ minus ‘promises to sell (short contracts). Read more