Global Commodity futures

The smart money typically are the men behind the curtain. Who are they and what do they do?

Commodity traders come in all shapes and sizes,but commodity trading firms can be and often are juggernauts. In the last year alone,the top 10 global commodity trading firms brought in $1.3 trillion in revenues. According to the Financial Times,a report commissioned by the Global Financial Markets Association,whose members are the world’s largest banks,wanted to gather evidence on why commodity trading houses should be regulated like banks. This might have been related to the drop in revenues by the top 10 banks’ commodity trading revenues to a “paltry” $1.2 billion. However,it appears the report,written by Craig Pirrong,professor of finance at the University of Houston,didn’t find the evidence the banks hoped they would. According to the FT,“it is unlikely that a large loss suffered by a single global commodity firm…poses a systemic threat to the broader financial system, ” and that “the nature of commodity trading,and the structure and capital structures of commodity trading firms makes them substantially more robust to [a financial crisis] than systematically important financial institutions, ” like Wall Street banks or big insurance companies,which are the groups largely held responsible for the 2008 financial system melt-down. The report was never published,but here’s our take on the identities of the “smart money.”

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Popular Q&A

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Do Hedge funds trade commodities, futures, currency, foreign and options as well as shorting?

Yes. Some don't even sell short. Sometime they set themselves up as a hedge fund so they can borrow and use leverage. There is really no restriction on what a hedge fund can do.

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