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London traders hit $500M jackpot when oil went negative

bloomberg.com

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Re: London traders hit $500M jackpot when oil went negative

#121

Post by manigandham »

totalZero wrote: post #79
manigandham wrote: post #69

Earlier quoted context omitted.

No retail trader is going to take delivery. The contracts would be forced closed or cash settled.

The exchange cannot simply cut a break to a trader for being a retail speculator; that's not how these NYMEX futures work. A brokerage might be able to help a customer buyer by settling the delivery itself, but settlement other than physical would require consent from the matched seller. (There exist other oil futures that are cash settled.) https://www.cmegroup.com/content/dam/cmegroup/rulebook/NYMEX... 200109. ALTE…

It's not about the contract, it's about the trade and brokerage.

A retail broker will either not let you trade these contracts, force close the trade, make you retender, or cash-settle (or charge an equivalent bill to handle all the logistics in an extreme case). You are not going to have physical settlement unless you make prior arrangements with your broker and show that you can even accept them in the first place, but that's extremely unlikely at the retail level.

Re: London traders hit $500M jackpot when oil went negative

#122

Post by Traster »

dageshi wrote: post #113
Traster wrote: post #100

Earlier quoted context omitted.

The funny thing about these stories is that it probably can be proven, and the reason for that is that there's quite likely a text or an e-mail from some cocky idiot saying "We could make a tonne if we push the price down" or "Man I can't beleive we managed to push the price to -37, we're going to make a killing".

I get the impression traders very deliberately don't put things like that in email explicitly so it can't be proven. There's a scene in one of my favourite movies Margin Call "I'm well aware of the fucking time Sam, I'm telling you, you need to see this" "See What? Email it to me" "I don't think... that that would be a good idea...." "I'm on my way" https://youtu.be/W7Jqwpnw9Lo?t=23

Yeah, that's the smart hollywood impression of what would happen if people were thinking, but often it looks more like this:

>Senior RBS Yen Trader: its just amazing how libor fixing can make you that much money

https://www.bbc.co.uk/news/business-21358362

And these messages weren't using some burner phones found in a raid, these were messages through their bloomberg terminals.

Re: London traders hit $500M jackpot when oil went negative

#123

Post by viklove »

baconandeggs wrote: post #34
Ecco wrote: post #29

Earlier quoted context omitted.

The double standard question is totally legitimate and a very good one! My point of view is that the trader willingly entered the market with the sole intent of trying to make a profit, whereas the other two just wanted to actually trade goods. Which is why the situation is asymmetrical in my opinion, and why the way we judge it could be as well.

> whereas the other two just wanted to actually trade goods. They wanted to trade excess goods , in other words, unrealized profits, for something usable to them to realize the profits of their labor. Everyone's intention is to profit, that is the reason you sell to the market .

Everyone's intention is to profit, even the con artist, but the buyer and the seller are providing and receiving goods, meaning they actually have a reason to be involved in this specific trade. One party produces oil, a second party consumes oil, and the third party is just there to take his cut because he thinks he's smarter than everyone else.

It shouldn't be surprising when one of these parties isn't trusted by the other two...

It's essentially scalping. Do you trust the people who buy concert tickets in advance and sell them to you at a 100% markup? They're serving the exact same role in society as these market players. No one likes them for a very good reason.

Re: London traders hit $500M jackpot when oil went negative

#124

Post by Anther »

gadders wrote: post #86
wodenokoto wrote: post #78

Earlier quoted context omitted.

Just like we pass around code-stories/war stories, I remember reading a funny story about this stuck-up senior trader who ended up having to take delivery of a shipment of coal. Probably an urban legend, but still funny. This thread seems to support the idea that you can't just receive your futures at home. But I guess even with a designated warehouse, you're stuck with the warehouse bill. https://skeptics.stackexcha…

There is also this story from Bloomberg about when one of their journalists tried to buy a single barrel: https://www.bloomberg.com/news/articles/2015-11-03/that-time... "Could a barrel of crude really kill me?" I asked a petrochemical engineer captive to my persistent, doubtlessly annoying questions. It absolutely can, he said. Hydrogen sulfide gas—H2S, for short—has a terrible propensity to evaporate from crude, kn…

Thank you for that link. It gave me a good chuckle. I work for a lab that analyses air samples. H2S is indeed interesting stuff.

Re: London traders hit $500M jackpot when oil went negative

#125

Post by javert »

silasdavis wrote: post #88
javert wrote: post #26

Earlier quoted context omitted.

Let's take an example. If I buy a stock at $20 from Arthur and sell it the next day for $60 to Bob, have I made $40 of value? Yes. Without people like me, Arthur might have gotten a much worse deal (possibly $0). Again, without people like me, Bob might have gotten a much worse deal (possibly $100, or maybe he wouldn't be able to buy at any price). That's the service that active traders provide to everyone else in th…

I am fine with your tautology: > It's not for you to judge whether the $40 is "worth" $40. It is. What other sensible quantative way of defining value is there? The question is do we think the position leveraged to extract that value is fair. You seem to think that price manipulation (presumably of some explicitly prohibited forms) can be unfair. So I assume you amenable to some extrinsic definition of fair play. In…

There are two kinds of fairness. Let's call them A and B.

Type A is when all the players in a basketball game are the same height.

Type B is when all the players in a basketball game play by the same agreed-upon rules (i.e. don't cheat).

Trying to eliminate Type A fairness from the world is not in anyone's self-interest, except (maybe) the people who are extremely low in the hierarchy of wealth/earning power. (But I think they would be better served by climbing the hierarchy than trying to make the world type-A fair.) This is quite a claim that I won't try to justify here; just think about it.

Type B fairness is in the interest of almost everybody. If you think you can cheat successfully, you may be against Type B fairness. But that's foolish. Creating a rigged system in one game opens up the doors for others to rig the systems in the games where I don't have an advantage (or cannot sustain the cheating advantage). For instance, Republicans in power now are undermining property rights, and that will hurt them more than it helped when they are out of power. Even if there are a few people who can get away with this (e.g. if you are an elderly Republican who is about to die maybe you don't care), the rest of us should reign these people in, as we are the majority.

If we want, we can call these two types egalitarian-fairness and rule-fairness.

Going back to oil trading: it may or may not be Type B fair. It probably is fair, though, because there aren't many rules in trading. The regulators try to create some rules, but few of those (if any) are actually recognized as real rules by the players; rather, they are obstacles. If you can get around them, you're just a better player of the game. (I'm not a professional trader, but that's my assumption about most of what goes on in trading; a professional trader may be less cynical about it.)

If you break a real type-B rule, you are cheating if it's a game and committing fraud if it's business. However we judge that, it's in the interest of the majority to punish that, to dis-incentivize rule-breaking.

Re: London traders hit $500M jackpot when oil went negative

#126

Post by jb775 »

dageshi wrote: post #113
Traster wrote: post #100

Earlier quoted context omitted.

The funny thing about these stories is that it probably can be proven, and the reason for that is that there's quite likely a text or an e-mail from some cocky idiot saying "We could make a tonne if we push the price down" or "Man I can't beleive we managed to push the price to -37, we're going to make a killing".

I get the impression traders very deliberately don't put things like that in email explicitly so it can't be proven. There's a scene in one of my favourite movies Margin Call "I'm well aware of the fucking time Sam, I'm telling you, you need to see this" "See What? Email it to me" "I don't think... that that would be a good idea...." "I'm on my way" https://youtu.be/W7Jqwpnw9Lo?t=23

Great movie

Re: London traders hit $500M jackpot when oil went negative

#127

Post by sukilot »

bko wrote: post #105
zahma wrote: post #84

I'd greatly appreciate if any of you can explain how such a trade happened in layman's terms. Every time I try to look various vocab, I end up getting deeper into the glossary of hyperlinked words on investopedia and totally lose sight of the bigger picture.

If I understand it correctly, you agree to buy something at a market price at a given time. Then you sell until that point, driving the price down and essentially exiting the trade at the same time. Matt Levine from Bloomberg explained it. Here are some excerpt > One fairly technical explanation that we discussed was the “trade-at-settlement” mechanism. In oil futures, you can do a TAS trade in which you agree, at so…

This seems to work regardless whether prices are positive or negative.

Re: London traders hit $500M jackpot when oil went negative

#128

Post by novaleaf »

bitlevel wrote: post #111
zahma wrote: post #84

I'd greatly appreciate if any of you can explain how such a trade happened in layman's terms. Every time I try to look various vocab, I end up getting deeper into the glossary of hyperlinked words on investopedia and totally lose sight of the bigger picture.

The film 'Trading Places' shows this in action (although they're trading on frozen concentrated orange juice prices and not oil). Both entertaining and educational.

indeed. Planet Money did an analysis of the film's future trade, and it was indeed plausible and legal (then)

https://www.npr.org/sections/money/2013/07/09/200401407/epis...

Re: London traders hit $500M jackpot when oil went negative

#129

Post by baconandeggs »

viklove wrote: post #123
baconandeggs wrote: post #34

Earlier quoted context omitted.

> whereas the other two just wanted to actually trade goods. They wanted to trade excess goods , in other words, unrealized profits, for something usable to them to realize the profits of their labor. Everyone's intention is to profit, that is the reason you sell to the market .

Everyone's intention is to profit, even the con artist, but the buyer and the seller are providing and receiving goods, meaning they actually have a reason to be involved in this specific trade. One party produces oil, a second party consumes oil, and the third party is just there to take his cut because he thinks he's smarter than everyone else. It shouldn't be surprising when one of these parties isn't trusted by t…

> One party produces oil, a second party consumes oil, and the third party is just there to take his cut because he thinks he's smarter than everyone else.

One party produces oil and a second party consumes oil, but those events do not occur at the same time. A third party 'stores' the oil meanwhile and charges for it. You are welcome do it for free, I'm sure you'd be a hero to society.

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