InvestorQ : Do traders who trade on margins make the commodity markets liquid?
Tisha Malhotra made post

Do traders who trade on margins make the commodity markets liquid?

Answer
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Ayushi Kampani answered.
2 years ago


These traders have a slightly longer term view on specific commodities compared to speculators who typically operate at the short end of the market. Margin traders use futures as a proxy for buying the commodity in the sport market as the benefit of margin trading is available in the futures market. Instead of locking up their entire capital in holding to a spot position, the margin traders use futures as a proxy for spot positions by paying a margin. Margin traders are not only willing to wait till expiry but are also willing to take a longer period contract and even to bear the rollover cost for carrying forward the position. Margin traders normally do not rely too much on technicals but have a very strong fundamental premise due to which they are willing to bear the roll cost to carry the position longer. The trades of these margin traders typically give hints to traders and analysts regarding which commodities are attracting long term interest and acting as a lead indicator of underlying shifts