Reply #50: Short Answer: Yes, If Regulated

[wellst0nev0ter]

Commodity trading, in simple terms, is when a producer of a commodity (say farmers) make contracts with a buyer (say cereal companies) for them to buy a commodity at a set price per unit, despite the market conditions. It's supposed to be a hedge against fluctuating prices due to droughts, oversupplies, etc.

Sometimes, the producer might not be able to find a buyer for some reason or the buyer isn't able to find a producer to buy from, so that's when speculators come in. They make the same deals with commodity producers and the buyers in hopes of making a profit, like they buy 10 bushels of corn at x dollars and sit on it until corn prices rise to x+5 dollars then sell it to a buyer at a profit. So they function in keeping the commodity trading market moving.

However, that model only works if the speculators are prevented from cornering the markets or if there just a small number of speculators working in the margins. Once the commodity market becomes flooded with speculators, as has happened in the past decade, then the prices get wildly inflated. It's like if there are a bunch of people going around saying they're willing to buy a bunch of cars - any number of cars - for $500,000. Eventually you're going to have cars selling for $500,000 each, and the honest car buyer who is in need of a mode of transportation being screwed over.