Jim4silver said:
wrcmad said:
leon1998 said:
Swap dealers/Banks are being squeezed/fxcked hard; ....
BS.
Just curious, how would it be possible to prove either your position or Leon's on this issue? The COT reports I see don't say a whole lot. Is there other info out there that does list such things? It would seem to me like the answer to this is easy peasy. It's not like we are talking about metaphysics here. But you wouldn't know that when there is so much disinfo out there, like for example, the mislead or liars who say gold contracts always settle in cash on the comex and physical delivery cannot be achieved, or that longs are being forced to settle in cash and made to sign non-disclosure agreements (and are paid a premium to keep quiet), etc.
Just my opinion.
Jim
Imagine a silver buyer named Joe.
Joe buys silver to make jewels for his store Joe's Jewels.
Some day, Joe gets an order for 1000 Mr-T style heavy silver chains at the price listed on Joe's Jewels' website.
Joe can only start their production over 1 month.
Joe could buy the silver already now and store it until then.
But Joe decides to avoid that cost for the moment, and places a silver order, to deliver and pay over 1 month.
But there is a risk here, the silver price may have been driven UP by then, and he cannot increase the price on the order of the 1000 Mr-T style chains.
So, Joe takes 1 long position (5000 ounces) on the futures market.
Joe uses a swap dealer as an intermediary for the order (ok not realistic of just 1 position haha but just to get the point).
So, the swap dealer receives, just like Joe received for his chains, an order, and wants to be sure of the price he's gonna get from Joe.
Because, if the silver price would have been driven DOWN by then, he'd receive less.
So, the swap dealer takes 1 short position on the futures market.
IF the silver price indeed changed the next month, BOTH futures market sides will receive compensating dollars on their futures accounts.
In reality, these 2 futures market entities are not eachothers counterparties.
Instead, they both share a same counterparty: the one that caused that price change.
And, since their price change risk is only the one during that 1 month, and their shared counterparty that buys or sells has to do it during that 1 month to alter the price during that 1 month, that shared counterparty pays those compensating dollars on the futures market accounts of Joe and his swap dealer, along a silver price driven up at a second/doubled rate, due to the 1 month - existence of the futures contract (the long position of Joe and the short position of the swap dealer), that drives the price already up upon their taking, alike the silver order gets delivered and paid for already now.
Instead, it gets cancelled (expired, or Joe that adds 1 short position to his 1 long position, resulting in a net neutrality) of course. Joe wants to buy 5000 ounces, not 10000 haha.
So that's why futures contracts mostly end in delivery of dollars instead of delivery of commodity.
It just wasn't the goal. The goal was to change the price in the favorable (compensation, the hedge) direction already before those that MAY change it. A nice lil' frontrun "in case".
Worth to add: at the same time, both Joe and his swap dealer give up any eventual windfall benefits (a lower silver price for Joe, a higher one for the swap dealer) that may occur during that month.
Though, these hedgers CAN fail and get inflicted an extra cost, of course not when they have their hedges in place, but outside that: due to bad timing when taking the futures positions. When their shared enemy, speculators, manage to "sneak in" their orders ahead of the period that the hedge exists.
Of course, globally seen, this isn't easy, since the hedgers tend to sit much closer to the markets producers, and intermediaries see alot orders pass, unlike Fred the speculator from his lil house on the prairie.
