A SALUTE TO THE TRADERS

Generally, the public’s perception of a trader is negative. Traders are the ones that cause all the turmoil in our lives. When prices move a certain direction unfriendly to our lives, it is thought to be the work of traders. Traders cause the stock market to go down when we need it to go up. Traders run up the price of oil and crash the prices of our bonds. Farmers blame Traders for driving down the price of their crops or running them up after they hedge. Cattle feeders question fair prices when they buy and sell futures because they are under the control of Traders. The Government vilified and prosecuted Goldman Sachs for behaving as a market maker in the middle of an over the counter product betting on mortgage yields. Basically, anyone making a living, betting on the price of anything, runs the risk of offending someone.

Traders fall into two categories. There are long term traders who make bets on price trends over an extended period of time. These traders take a view of a particular market and are willing to wait to exit the position for longer terms -- generally months before they see results. Traders forecasting inflation have been placing trades based on this forecast for over a year and to date there is no payoff. Then there are short term traders who are basically arbitrageurs. They see an offering at a price they feel is under or overvalued and purchase it hoping to turn around and flip it for a profit. 

Traders in both categories fall into several different types. Some are intuitive and gather information in unique methods and then feel a certain direction is right for the trade. Others are analytical pouring over mountains of facts and historical patterns arriving at a conclusion on the market direction. There are technical traders who watch the charts to detect pricing patterns for the future. Others look only to fundamental data on supply/demand relationships.

The function of a trader is to discover the price of a product or commodity. To this end they serve an invaluable benefit to markets. They send market signals to the producers of the product -- offering encouragement or discouragement in their production plans. The reaction of the producers determines the supply of the product for months to come based upon what a trader will give for future deliveries of the product.

It is only when moral terms become attached to the actions of Traders that our economic system suffers. Self interest is NOT bad. Accompanying every trader choice to buy or sell is a risk that the bet will be wrong. The person on the other side of the transaction is betting the opposite direction for prices. There is nothing “good” or “bad” about the bet unless the transaction violates a law or trading protocol. The fact that a Trader profited from his purchase or sale, is not wrong or bad. Frequently the press and public are alarmed by the fact of Traders making money in the marketplace.

It would be helpful to educate the public in the role and benefits a Trader offers to the marketplace. Academics and analysts offer their views every day and some of us listen, but traders place their money at risk and put their money where their mouth is.

Written By: The Ag Center