WEST PALM BEACH, FL (www.hedgeco.net) – Hedge funds have always been blamed when things go wrong in the markets, for instance hedge funds have been blamed for the skyrocketing oil prices. Buteconomists from the Federal Commodity Futures Trading Commission {CFTC} have cleared the role of hedge funds in the increasing oil prices. According to a new released report, hedge funds are not thecause of the skyrocketing oil prices. The report further said that hedge funds provide vital needs to the financial markets, such as liquidity to the futures markets. Some blame hedge funds based onthe large trade positions often taken by them.
Michael Haigh, an economist at the Federal Commodity Futures Trading Commission, said when hedge funds take large positions, other market players are forced to sell. Haigh said, “Everyone can’t be buyers, it takes two to tango.” According to him, when hedge funds initiate buy or sell positions in the markets, such action in turn offers large actors, such as the commercial traders, liquidity to either buy or sell.
The new report stated, “We … find no evidence of a link between price changes and MMT position changes (conditional on other participants trading) in the natural gas market, and find a significantly negative relationship between MMT position changes and price changes (conditional on other participants trading) in the crude oil market.”
Tim Evans, analyst at IFR Energy Services, speaking about the liquidity role of hedge funds in the markets stated, �In a sense over a time frame of six months to a year that’s probably true, however, there are times in the market when aggressive or panic long liquidations are taking place, when the funds are trying to squeeze through the same door as everyone else.”
Evans believes that in a time of crisis, hedge funds become part of the problem. He said, “Please don’t tell me that they dampened volatility at the moment of crisis, during that period they were not part of the solution, they were part of the problem.” While the new report believes the opposite view, it is unlikely that those who believe that hedge funds destabilize the markets will change their long held views on this issue.
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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