The Difference Between A Good Speculator And A Bad Speculator
eb0la-Flcikr
What’s the difference between a good speculator and a bad speculator? That’s the question that the Commodity Futures Trading Commission is trying to answer.
And, it’s my bet, that they’ll find that the law of unintended consequences will rule that answer. And even the good speculators–if there is such a thing–will pay a price. So will non-speculators.
There’s a good explanation of what’s happening at Can Turtles Fly blog, but essentially here’s what’s going on: The CFTC is trying to avoid a repeat of the massive, speculation-driven run up of energy prices.
So, they’re limiting how much money speculators (who must be bad) like Deutsch Bank and vehicles for speculation (that must be bad) like Exchange Traded Funds (ETFs) can bet on futures. But, wait a minute, don’t you hold ETFs? Millions of regular, independent, non-evil investors hold ETFs.
That’s the point.
The market is governed by fear and greed. It’s not meant to be an altruistic system. But it can be effective. By limiting speculation in one group, all speculative activities will be affected.
If you hold or trade ETFs, which are a popular way to invest in certain asset categories and industries, your ability to invest may be thwarted and your investment costs could go up.
Another point that’s missing: Speculators can make money driving the price up or down. Recent price run-ups in commodities, like oil, were based on supply increases and demand shortages. The speculation, no doubt, added froth to a bubbling situation, but it was not the exclusive reason for the wild swings.
And, it’s interesting, that no one seemed to mind when speculation drove the prices down to deep lows.
In a few months, no matter what CFTC does, we’ll find that speculation isn’t good… it isn’t evil… but it is needed.
Related posts:
- Ready To Blame Oil Speculators For The Next Price Gusher?
- Deutsche Bank Closes Leveraged ETF
- What’s the Difference Between an Investor and a Trader?
- What is the Difference Between an Investor and a Trader?
- How To Start Your Own Hedge Fund
Related posts brought to you by Yet Another Related Posts Plugin.
is one of my favorite financial books of all time. It's an allegory about a guy who has a terrible job, and how he overcomes challenges to achieve his dreams.
