Market Participants Flashcards
Who is the contract principal on a deal?
a trader
Why is a trader a contract principal>
At one point he will own the commodity, so he runs risks
Why would a trader run a price risk?
If he is not properly hedged
Why would a trader run a basis risk?
if he is hedged and the price of commodity he owns moves adversely relative to his hedge
What is a company who trades in physical commodities called?
trade house/ trading house
Which market participant doesn’t take a price risk>
A broker
What does a broker do?
puts together buyer and seller for comission
What is the risk for the broker>
losing comission if one or both parties in contract fail to perform - his loss is limited to comisssion, but so is profit
What is the role of a broker in the market?
Brokers lube up the market. looking for teh commodity in the place, time and form that benefits both parties in a transaction
What relationship do traders and brokers have?
Traders don’t have enough time to call all possible sellers when they want to buy, or all possible byuers when they want to sell. Brokers do that and help negotiate.
Why are brokers useful?
They are constantly in touch with everyone and can pick up relevant news, views and trends that they can communicate to traders.
Who do brokers work for?
No one. they should not favour either. Sellers traditionally pay the broker but that means nothing in terms of favouring
What is a futures broker?
someone who executes an order on a futures exchange on behalf of a client.
Who are agents?
They work for a company, perhaps in another ocuntry sourcing them produce etc
Which market participant is neither a physical trader or merchindiser?
Commodity speculator
