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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

#41

Post by gruez »

Ecco wrote: post #32
gruez wrote: post #31

Earlier quoted context omitted.

Con artists are getting your consent via deception. Is this the case what derivative traders are doing?

Well, one could argue that they are just smarter than other people and manage to find market opportunities. Good for them I guess. But technically since it’s mostly a zero-sum game would it be wrong to consider that they use their smarts to deprive other people of value?

Do you really need me to explain why fraud is wrong? Fraud is wrong because you're betraying someone's trust. It's bad for society because it adds friction to business dealings. When you can't trust your counterparty, you have to expend tons of money doing due diligence. This is true regardless if you're smart or not. Being the smartest person in the world isn't going to help you if you're being deceived (assuming you're not omnipresent).

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

#43

Post by neximo64 »

baconandeggs wrote: post #24
neximo64 wrote: post #20

Earlier quoted context omitted.

You can always 'create' more oil by pumping it out of the ground once the prices hit a certain amount. So it's not really 'zero-sum'. If the supply isn't locked or restricted it's hard to say that. Same thing with Tesla shares, or whatever it is. If you can create more Tesla shares its not zero sum (which is done often). Currencies too are printed when needed. About the only thing really zero sum are some cryptocurre…

It is zero sum in the sense that all the money has to be equal to all the stocks. Not in the sense of perceived value .

You can make more money though & you can make more stocks. That's where the notion you're addressing breaks down, even in the perceived sense:

The Hong Kong dollar is pegged at the moment, this also means it's not zero sum for a buyer or seller either, especially at the peg boundary like now. They simply make more Hong Kong dollars or withdraw them.

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

#44

Post by anonu »

The crux of this trade was the TAS order type. It seems like these guys arbed the liquidity difference beyond their wildest dreams... But now they're probably spooked about it because it sounds borderline manipulation.

Order types are constantly getting traders or exchanges in trouble. If you know about the less popular ones you always stand to beat out your competitors who dont. TAS reminds me of D-quotes on NYSE.

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

#45

Post by selimthegrim »

baconandeggs wrote: post #40
Ecco wrote: post #28

Earlier quoted context omitted.

Well, a theft can be voluntary: that’s what con-artists do all the time!

Now that you've reached the point of calling everything theft, there is nowhere to go. Congratulations.

Well according to Matt Levine, everything is securities fraud...

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

#46

Post by baconandeggs »

neximo64 wrote: post #43
baconandeggs wrote: post #24

Earlier quoted context omitted.

It is zero sum in the sense that all the money has to be equal to all the stocks. Not in the sense of perceived value .

You can make more money though & you can make more stocks. That's where the notion you're addressing breaks down, even in the perceived sense: The Hong Kong dollar is pegged at the moment, this also means it's not zero sum for a buyer or seller either, especially at the peg boundary like now. They simply make more Hong Kong dollars or withdraw them.

It is zero sum because it adjusts, no matter what you do. If you pump more oil from the ground, the prices will fluctuate until they reach the new zero-sum level that takes into account the new production level.

A pegged dollar is the same, it only takes a little longer. When they print they dilute the value of the current dollars in circulation but not immediately, because of the peg. But eventually, because it is zero-sum, so much pressure is pent-up trying to maintain that non-zero-sum peg that the system begins to crack and they have to re-peg it. Which happens often with pegged currencies.

This does not mean there are no winners and losers, personal finance is of course not a zero-sum game. And because the adjustments are not instantaneous there is a lot of room to profit if you know what is happening, which gives the impression of it not being zero-sum.

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

#47

Post by hogFeast »

arcticbull wrote: post #39
tus88 wrote: post #22

So which traders lost $500M?

Commodities trading like this isn't really zero-sum like, for instance, options trading or equity futures trading. Oil producers who had a giant backlog of oil and nobody to sell it to (and full storage) were paying people to take it off their hands that month. Some enterprising folks were able to find some storage, hold on to the oil until the next expiration date, and were rewarded to playing a role in the market.

Er no. It is. The losers were Chinese banks/investors. Chinese banks created a ton of financial products linked to oil futures, they didn't know what they were doing and left it to the last minute to roll (afaik, none of the products in the US blew up).

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

#48

Post by jmvoodoo »

Ecco wrote: post #16
throwaway1777 wrote: post #13

Earlier quoted context omitted.

Derivative trading is usually zero sum. There is a loser for every winner. I don’t understand in what world buying and selling oil on an open market could be considered theft. Everyone knows the rules of the game.

Well, let’s consider a simplistic example: an obscure currency, let’s call it FAKE, that can be traded for USD. That currency is only used by people in a small island, and that island only exports clamshells and imports Big Macs. In this scenario, and unless I’m mistaken, the FAKE/USD rate will vary depending on: - how much clamshell those people can export and how much US people value them - how much BigMacs those g…

When he is successful he is providing liquidity to the market, which is value, not theft.

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

#49

Post by rsuelzer »

hogFeast wrote: post #47
arcticbull wrote: post #39

Earlier quoted context omitted.

Commodities trading like this isn't really zero-sum like, for instance, options trading or equity futures trading. Oil producers who had a giant backlog of oil and nobody to sell it to (and full storage) were paying people to take it off their hands that month. Some enterprising folks were able to find some storage, hold on to the oil until the next expiration date, and were rewarded to playing a role in the market.

Er no. It is. The losers were Chinese banks/investors. Chinese banks created a ton of financial products linked to oil futures, they didn't know what they were doing and left it to the last minute to roll (afaik, none of the products in the US blew up).

USO blew up. The held 25% of all the negatively priced contracts at close. The crux of this story is that investors piling into these ETFs created a massive sell side pressure at the close which this hedge fund found a way to arbitrage.

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

#50

Post by hogFeast »

anonu wrote: post #44

The crux of this trade was the TAS order type. It seems like these guys arbed the liquidity difference beyond their wildest dreams... But now they're probably spooked about it because it sounds borderline manipulation. Order types are constantly getting traders or exchanges in trouble. If you know about the less popular ones you always stand to beat out your competitors who dont. TAS reminds me of D-quotes on NYSE.

It isn't an order type. In many institutional markets, trades are settled at a price that isn't known when the trade is booked. This happens in rates (LIBOR rigging was an example, it happens elsewhere), it happens in forex (the daily fix, masses of shenanigans there).

You also find it in derivative markets (equity options on expiry dates) or, indeed, in any situation where certain dates matter (fund manager with a big position in an illiquid stock ramping the stock before their reporting period ends).

But yeah, all the people involved with this trade were locals in London, and every local I have ever met has these "scams". London's forex market is huge, and the stuff that used to happen at the fix was legendary (I don't know how much business is done at the fix today, I used to know a big institutional trader, and all he talked about was rigging the fix...no, it wasn't illegal).

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