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City38
Penny Sorter Member
62 Posts |
 Posted - 12/24/2009 : 02:12:21
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I know Im showing my ignorance here but ive been searching the web for a good website that can explain market stuff (dont know the proper terms!) what is a short position? the stuff I read is talking about having silver leased out? on contracts that can't be covered (I understand why that would drive up prices) I know the answers to these questions could be complex, but any help yall can give would be great...I find this stuff very interesting!
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jadedragon
Administrator
Canada
3788 Posts |
Posted - 12/24/2009 : 03:30:30
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It is not too complicated once you understand the language of futures and options trading.
Taking a short position involves selling something you do not own with a promise to deliver at a future date. You might do this if you figure the price of the item will decrease by time delivery is required. It's called a short because you literally are short the item until you buy it (or an offsetting contract) to settle. The opposite position of going short is called going long.
In commodities trading the players who have short positions are called the "shorts". The shorts want to see the price fall so they can cover their short positions at a profit.
It is not required to actually buy the commodity one has shorted. A commodity position can be settled by paying the price difference in cash. Alternatively at any time one can buy a off setting long position maturing on the same date (covering the short position). While a short contract is open the trader will look for price dips to cover the short position.
Some people believe that the shorts are manipulating the silver (or other commodity) market to lower prices.
We actually practice a different concept called arbitrage here. Arbitrage involves buying a commodity in one market at a lower price and selling it (often simultaneously) in another market at a higher price. Traders might buy silver in London and sell it in New York at a slightly better prices at the same time due to variances in trading prices.
We buy pennies from the banks at face and sell them into the market at better then face. The bank is one market and ebay or the forum is another. If you found a buyer at 2X and know you can buy sorted pennies for 1.5X you can also do arbitrage.
If you wanted to go short on copper pennies you could actually contract to deliver copper pennies next week and then go buy them from a bank to sort to cover your short position. |
“The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.” – George Bernard Shaw.
Why Copper Bullion ~~~ Interview with Silver Bullion Producer Market Harmony
Passive Income blog |
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City38
Penny Sorter Member
62 Posts |
Posted - 12/24/2009 : 03:52:08
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| Thank you! I guess I was getting stuck on selling something that you dont have, but you cleared it up well. Is there a website that you or anybody else knows of that dumbs this stuff down for folks like me? In the Marines we called it "barney style" after the purple dino. haha! |
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jacer333
Penny Pincher Member
USA
119 Posts |
Posted - 12/24/2009 : 10:09:54
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| Great info Jade, this wasn't exactly clear to me either! Sounds like risky stuff I want no part of. |
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1945V
Penny Pincher Member
Canada
153 Posts |
Posted - 12/24/2009 : 11:48:16
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One of the perils of short selling is if the security or commodity you shorting rises in price (instead of dropping) you are liable for the difference.
For example, if you shorted a stock at $50.00 and instead dropping in price, it rose to $500, you must replace the original stock you shorted by buying one on the open market for $500.
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Edited by - 1945V on 12/24/2009 11:48:39 |
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jadedragon
Administrator
Canada
3788 Posts |
Posted - 12/24/2009 : 12:13:13
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| ya short selling is kind of risky. I don't know about any resources specifically. I just go by what I learned in my finance classes and have picked up reading over the years. |
“The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.” – George Bernard Shaw.
Why Copper Bullion ~~~ Interview with Silver Bullion Producer Market Harmony
Passive Income blog |
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fb101
Administrator
USA
2856 Posts |
Posted - 12/24/2009 : 22:42:06
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| The only thing I didn't see mentioned is that short positions create a "false" supply which suppresses prices. |
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City38
Penny Sorter Member
62 Posts |
Posted - 12/24/2009 : 23:56:28
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fb101, I think that may be the other part of my question. How can people make a contract for an item in such quantity that it is impossible to cover the deal? how do they keep from losing thier shirt?
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beauanderos
1000+ Penny Miser Member
USA
2408 Posts |
Posted - 12/25/2009 : 00:57:14
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Look who's doing the shorting. Goldman Sachs and JPMorgan. I know they both benefitted immensely from TARP. Did they spend some of that "losing" money just to suppress prices? JPMorgan is one of the banks that is part of the FED. They could do this indefinitely, just keep suppressing the price and using monopoly money to cover their losses, printing as much as they want. The only thing that can stop them is if people take physical delivery of their silver and gold and run COMEX out of their metals.  |
Hoard now and hold on!
http://coppermillions.blogspot.com/
http://wherewillyoubein2012.blogspot.com/ |
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sheba
Penny Pincher Member
USA
191 Posts |
Posted - 12/25/2009 : 01:14:55
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jadedragon
I'm pretty much like City38 .. no understanding of 'shorts', 'longs', etc. (and besides that, no money or interest in trying to invest in such things  ).
But I did want to tell you 'thanks' for the great explanation ... you have helped me to understand something that has basically been 'gobbledegook' to me ever since I heard the terms being used on some gold and silver forums
Thanks again!!
sheba |
woof ... wag ... whine |
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jadedragon
Administrator
Canada
3788 Posts |
Posted - 12/25/2009 : 03:53:25
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quote:
Originally posted by City38
fb101, I think that may be the other part of my question. How can people make a contract for an item in such quantity that it is impossible to cover the deal? how do they keep from losing thier shirt?
Again I'm going to use fictitious numbers for illustration only.
Going short or long is part of trading in futures contracts. A futures contact is just a promise to deliver some set quantity of a certain commodity in the future at a certain price or pay the difference.
There are two types of players in the market. Those with a valid business reason for creating futures and those just betting on the market trying to make money.
Take wheat for example. Say a farmer has to decide what to plant in the spring. He looks at his costs for seed, fertilizer etc and figures out he can grow a ton of wheat and needs to sell it at $100 to make money. The farmer does not want to grow the wheat at a loss, so he decides to sell a futures contract agreeing to deliver a ton of wheat for $100 in 6 months. The farmer does not have the wheat (yet) so he is short for now, but he can deliver later so he is not really naked.
A flour mill needs to buy wheat to meet customer contracts. They have to set a price with the bakery so the mill goes and buys a futures contract from the farmer. The mill agrees to buy a ton of wheat for $100 in 6 months (exact match to what the farmer sold). The two sides form a complete contract.
You might expect that the farmer will deliver the wheat to the mill and the mill will pay for it. Reality is the farmer does not deliver the wheat to the mill to match the contract because that would be inefficient and unnecessary.
Wheat has a set minimum standard. As long as the wheat meets the standard it is a commodity. By definition, a commodity is something where everyone is neutral to getting any particular batch of the item. For example gold is gold. You can send me solid gold bars and I could care less which bars as long as they meet the purity standard and weight.
6 months after the wheat future was written, the immediate delivery price is $110 a ton. The farmer delivers his wheat to the grain elevator and collects $110. He settles his future contract by paying the mill $10 through the exchange.
The Mill buys wheat at the elevator for $110 a ton and gets $10 from the farmer via the futures exchange.
In effect the mill gets $100 wheat and the farmer gets his $100 target price. If the immediate delivery price were $90 instead, the mill would have to pay (via the exchange) the farmer $10. Both parties have fixed their future price and reduced business risk very effectively. The process is called hedging.
Along side the farmer and the mill are some market speculators. Say Speculator A wants to bet that wheat will fall in price and Speculator B wants to bet wheat will be worth more. Spec A offers to sell a ton of wheat for delivery in 6 months at $100 (just like the farmer) and Spec B buys the contract (just like the mill). Remember just like the farmer and the mill the contract is settled in cash, not in wheat. In 6 months the immediate delivery price is $90 so Spec A collects $10 (via the exchange) from Spec B. Spec A was short in this deal since Spec A had no wheat.
Since the market contracts are always settled in cash it does not matter that Spec A has no wheat. In fact Spec A can sell wheat futures all day long so long as he can find willing buyers. Speculators could easily sell more wheat futures then there is wheat exists in the whole market . No one really cares how much wheat there really is since the futures are all just bets between buyers and sellers.
If that sounds strange, consider a non-commodity. There is only one Mona Lisa Painting. If we know it is going to auction we could all place bets on the sale price with the actual sale price determining who wins and loses and by how much.
If lots of speculators (shorts) offer lots of wheat futures at low future prices, it actually forces the price of wheat down and more so as the settlement date draws nearer. Why would you pay top dollar knowing that it will be available soon at a lower price? Paper wheat is forcing the real value of wheat down. |
“The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.” – George Bernard Shaw.
Why Copper Bullion ~~~ Interview with Silver Bullion Producer Market Harmony
Passive Income blog |
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Computer Jones
1000+ Penny Miser Member
USA
1112 Posts |
Posted - 12/25/2009 : 11:34:35
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quote:
Originally posted by jadedragon
Big Snip about Short, Long and Futures
I'm pretty sure I paid $47 a credit (plus fees) for a 3 credit Econ 202 class in 1975 that took 10 weeks led by a frazzled Grad student for this information.
Do you supply a fancy piece paper if I promise I read and understand it? |
There's profit if you melt things!!
8{> |
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mickeyman
Penny Pincher Member
Canada
243 Posts |
Posted - 12/27/2009 : 13:53:33
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The suppression of prices has more than the obvious effect on the value of your hoards of gold, silver, and copper. It has really made the entire world poorer. Lower prices means lower production.
It seems intuitive that if you were to lower the price of all commodities, then everybody would be wealthier. But isn't wealth having gas in the car, stocks of food in the basement, a surplus of arable land? Isn't real wealth in things rather than paper? Lower prices for commodities means lower production. If you look at the production of nearly every non-agricultural commodity, per capita global production generally peaked in the 70's and has been level to declining ever since. So we have a lot more paper wealth flowing through the world, but there is less stuff. And we are all poorer. |
Not all who wander are lost. |
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need some help with short positions
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