Speculators play an important role, taking on risks that others do not want. They anticipate fundamental factors and multiple costs of processing, as well as unpredictable risks across the political, economic, weather and technological spheres.
Speculators are an essential component of all markets, and are crucial to producers, manufacturers, distributors and end-users. Unfortunately, this activity and role is sometimes misunderstood. As two University of Illinois professors wrote in the New York Times, “…speculators are a convenient scapegoat for the public’s frustration with rising prices. That’s unfortunate because curbing speculation — and hobbling the ability of businesses that rely on futures markets to reduce their risk — is counterproductive.”
There is little evidence to suggest that speculation creates price changes. The CFTC, as well as the European Central Bank share this view. One leading academic says that despite the popularity of such views, they are unfounded. “As yet there is no serious theory, and certainly no serious evidence that speculators have distorted commodity prices.”
Back to top