Speculator

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A speculator is someone who trades derivatives, commodities, bonds, equities or currencies for the sole purpose of realizing a profit with the money put at risk. A speculator differs from an investor in that an investor typically puts money at risk both for the purpose of achieving a profit, and also for assisting the investment vehicle in prospering or achieving greater success.

In commodity futures trading, a speculator is considered to be in a separate class from a hedger, even though their actions in the marketplace may be similar; though a speculator can buy and hold a futures contract as a hedger can, the speculator has neither the actual commodity in production, nor a commercial need to purchase the commodity, that hedgers have.

Speculators as a class are not defined by universal characteristics. They may be sophisticated investment firms employing complex algorithms that govern their trading; they may also be individuals with limited capital trading in small quantities for their own accounts. Speculators are commonly found trading highly-leveraged products, but the strict definition of the term does not require this to be the case.

History

The word "speculation," in the sense of "buying and selling in search of profit from the rise or fall of market value" is recorded as early as 1774.

Controversy Over Speculators

Speculation in commodity futures markets have been a target for concern for decades, and speculation has been considered at times either for the cause of unfairly low prices, as when problems in the onion market in the 1950's led to a ban on the trading of onion futures[1] or for unpleasantly high prices.

In 2008, extremely high oil prices led Washington politicians to examine the role of speculators in the energy and commodity markets, holding more than 40 separate hearings to address the issue.[2]

In response to this onslaught of political attention, the Intercontinental Exchange (ICE) launched a new web site, oilfuturesmarketfacts.com. The CME Group also set up a page within its web site to inform the public about the role of speculators in the commodities markets.

During the controversy, a number of airlines in the U.S. sent a letter to their customers promoting a newly launched web site, stopoilspeculationnow.com, where they tried to rally populist suppport for the speculation-limiting bills being considered before congress.

External Links

References

  1. "What Can Onions Teach Us About Oil Prices? ". Carpe Diem blog.
  2. "An Energy Sarbox". The Wall Street Journal.