Manipulation of Commodity Market for Future
Market manipulation is a word used to describe a sort of market abuse in which fair and free-market processes are aimed to disrupt. Market manipulation is the most visible product, security, and commodity market. Here the majority of cases involve misleading appearances or creating false information concerning price and demand. It is a kind of fraud and thus prohibited in most countries.
Commodity market manipulation will affect profitability. And quantities of future contracts. Let’s scroll and read the impacts that are too simple to explain.
Impact of Manipulating Commodity Market
Because of the many factors influencing commodity prices, determining the cause of a price movement and assigning blame is challenging. The strong demand for commodities by investors is the impact of the commodity market. As a result, the price of expired items has skyrocketed. The price increase is because of two reasons;
- Since the commodity expires in actual or manipulated. The sellers will do their best to liquidate it, for which they will willingly pay the inflated marginal cost.
- It concerns markets of distant locations. The commodity price concerned is a higher leading attraction for others investors.
Price variation influences global economic development and technological advancements. The growth of China and India as significant manufacturing entities (and hence higher demand for industrial metals) has, for example, resulted in a drop in metal supply. Steel is an excellent example for the rest of the globe.
Variations in supply damage the demand; When goods are scarce, prices rise. Then the significant disruptions that occur in a global commodity supply. The widespread disease quickly affects cattle. It could be a change in cattle demand, which is usually steady and predictable.
Prominent impact of manipulation of commodity
The demand for commodities increased due to temporarily expected manipulation. It will lead to increased prices of expired items concerning deferred entities that do not experience the manipulation. The manipulation of items in terms of the price leads to enhance the supply, especially when the market period is ended. This increased supply will then causes a decrease in price in the market afterward manipulation. Demand for more supply and lower pricing moves away and toward backwardation.
Is Manipulation is harmful to Commodity Market
The manipulation termination will harm the commodity market. It’s similar to doing narcotics when the experience is desirable, but the effects are unavoidable. When manipulating the commodity market, the termination of excessive demand causes a sharp drop in the price of a commodity; meanwhile, the supply rises. The traders refer to this effect as “burying the corpses” of Manipulation. The numerous availability of items presented by corpses. This effect is the leading risk connected to Manipulation.
Sometimes, the market’s supply elasticity is misconceived by the manipulator, and prices are set to liquidate. The price creates a large number of supplies in the commodity market, which do not expect before. In the end, the attempts of manipulation of the market go down and resulting in huge losses.
Despite Against Negative Impact
Despite the negative consequences, manipulators may exploit this effect willingly, implying that they have another motivation for doing so. Moreover, the incentive to use this effect implies that the manipulator benefits from the high prices of the expiring futures and the deliveries of excessive supplies of commodities, which summarizes the fourth point.
Fourth, a sudden change in price causes a sudden change in the number of supplies available. Thus, the manipulation will lead to excessive collection at the end that serves as an incentive for manipulators since ample supply will call for shipment of commodities. Furthermore, the more supply of items will result in a large gathering of stockpiles in warehouses as the backwardation badly affects approaches—the polar opposite of the competitive market scenario.