It is educational for readers/traders to understand why commodity prices keep rising in spite of ample supply. Please read the testimony and you will be enlightened!
June 10, 2008 – 10:58 am
This excerpt of a Testimony by Michael W Masters before the US Senate has been submitted by NicT of HK which I reproduce hereunder:
What we are experiencing is a demand shock coming from a new category of participant in the commodities futures markets: Institutional Investors. Specifically, these are Corporate and Government Pension Funds, Sovereign Wealth Funds, University Endowments and other Institutional Investors. Collectively, these investors now account on average for a larger share of outstanding commodities futures contracts than any other market participant.
These parties, who I call Index Speculators, allocate a portion of their portfolios to “investments” in the commodities futures market, and behave very differently from the traditional speculators that have always existed in this marketplace. I refer to them as “Index” Speculators because of their investing strategy: they distribute their allocation of dollars across the 25 key commodities futures according to the popular indices – the Standard & Poors – Goldman Sachs Commodity Index and the Dow Jones – AIG Commodity Index.
Please read more at link at the top of page.
It is educational for readers/traders to understand why commodity prices keep rising in spite of ample supply.
Here is a bonus to go with the abovementioned article – NUGGET OF TRADING WISDOM: 2% Rule
The 2 % rule is a basic tenet of “risk management” or “capital preservation” as they are more descriptive than “money management”.
Larry Hite, in Jack Schwager’s Market Wizards (1989), mentions two lessons :
- Never bet your lifestyle ie never risk a large chunk of your capital on a single trade.
- Always know what the worst possible outcome is.
Hite goes on to describe his 1 % rule which he applies to a wide range of markets. This has since been adapted by short-term equity traders as the 2% rule:
The 2 Percent Rule: Never risk more than 2 percent of your capital on any one stock.
This means that a drawdown of 10 consecutive losses would only consume 20% of your capital.
Ana aka IDkit