I was talking to a friend the other day that runs an animal feed business.
He was telling me how his company has different mills for processing different things. And how one of them – where they are putting in new production line – deals with soybean meal.
“Ha,” I said. “I used to trade soybean futures but I never really thought about where they actually get used.”
He gave me a sideways glance, and with a wry smile replied, “Oh, you’re one of the dreaded speculators are you? Your antics drive our pricing guys crazy!”
As traders we love it when the markets move, when there’s a bit of volatility so we can buy low and sell high. And the quicker we can do it the better!
But it turns out if you’re in the animal feed business you want the markets nice and calm and quiet. So you know exactly what the price will be for weeks, ideally months, into the future.
It means you get to avoid the angry conversations with your customers down on their farms when you phone them to say the price of their cattle food is going up, again!
Anyway, I did remind my friend that if it wasn’t for us speculators there wouldn’t be a fully functioning market.
His buyers need someone on the other side of the trade at the moment they wanted to buy their soybeans. They actually NEED us intermediaries in order for the market work properly!
But it is good to give some thought and understand why the markets are there in the first place.
They are not there purely for our benefit as price speculators.
In fact, knowing how and why financial markets developed can give you new and critical insights beneficial for your own trading campaigns.
So this week why not freshen up on your market history?
Because you know what they say: “If you want to know the future look at the past.”
So here’s a free book to get you going. It’s called Financial Market History: Reflections on the Past for Investors Today.
You can download it direct from the webpage. You don’t have to enter your email address or anything.
There will be a test next Tuesday so no skipping your homework