0 Sep 16 @ 10:45am by Matt Smith in Capital Markets, Global Energy, Natural Gas, Random

Supply, demand & market equilibrium = rock-paper-scissors

This is not a profound assertion, but merely an observation: commodity markets are always in a state of flux, because, just as rock-paper-scissors doesn’t have a single dominating force, commodity prices constantly face a myriad of moving forces. There may be a millisecond or two at a moment in time where a market is balanced, but in reality, the most efficient market will always have some sort of imbalance. This supply and demand volatility is further escalated by factors ranging from investor sentiment to technical analysis. 

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Rock-paper-scissors is not a game of chance, and neither are commodity markets. You have to place some faith in a rational approach by studying the fundamentals of a market to forecast future trends, because it is overwhelmingly likely that supply and demand are the key price drivers (barring technical analysis). But while in rock-paper-scissors you can always ask for the ‘best of’ 3, 5, 7, ad infinitum (depending how badly you are getting beat), adverse price movements from an ill-timed trade means you can be punished for a single weak decision; hence the need for extreme care.

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