Thread by @skylanetk, I was looking through some old files this morning looking for some [...]

I was looking through some old files this morning looking for some saved historical data and I came across this from 2013. I wrote it for a trader friend of mine who was having a difficult time explaining his value as a trader to society, to his friends and family. It is a .....

and by no means complete description.
Speculation and speculators by @skylanetk
In any efficient modern economy there arises a need to transfer risk of a commodity’s price movement by producers and consumers of the commodity. The ability to transfer risk enables those producers

and users to fix costs and therefore plan their production (in the case of producers) and consumption (in the case of users) much further out with greater price stability than a market that does not allow or have such risk transference capability. Herein arises a need for.....

someone to provide that function of risk transference, the Speculator. One might ask why don’t the producers and users just contract amongst themselves. Let’s take a look.
Producers and users do contract amongst themselves to transfer risk.

Those contracts are private and do not allow the market place to have any price discovery. Therefore other producers and consumers may be trading at prices that are to the disadvantage one or other. This was the case quite often in the past where rural producers were often taken

advantage of by urban users. Organized boards of trade arose to fill the need of open and publicly traded commodities where prices were widely disseminated to all parties in the market place.
The role of the speculator arose out of the need for a continuous price discovery.

Since users and producers are not always simultaneously in the market place buying and selling and at prices both are willing to transact business at, the door opens for the role of the speculator. The speculator is someone who is willing to accept the risk of price movement,

putting his own capital at risk in the process. He provides liquidity to the market place by being willing to buy or sell at any given time. His behavior narrows spreads between the bid and ask prices. Many speculators spend huge amounts of time studying all factors affecting

their market. This study of information by all parties, producer and user, hedgers and speculators goes a long way to insuring an efficiently priced market. The speculator is “paid” for his work by making small profits on numerous trades.

His valuable input of providing liquidity insures more smoothly functioning markets. Without the speculator doing his job no market would operate efficiently.
Many people when observing large market moves attribute them to speculators “manipulating the market”.

Let me assure you that in the very very very short term that is possible, but over the long term it is not. Large moves (trends) are caused by fundamental changes in supply and demand, ALWAYS. Those changes and perceptions by hedgers would produce much greater swings in price if

it were not for speculators willing to step in and accept risk.
So next time you step on a plane that you purchased a ticket months in advance, know that the airline was able to price that ticket because of their ability to efficiently transfer the risk of fuel price changes

and therefore fix their fuel costs out many months in advance. All because a market place full of speculators enabled them to transfer risk.

Written in 2013 when fuel costs mattered.

So for all of you speculators who throughout history have been blamed distorting markets, know that you have value and provide a great service. Exchange traded futures contracts grew out of that need to provide OPEN and PUBLIC price dissemination.

And that is a subject "Open and Public" price dissemination that I will go after next and you won't want to miss it......

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