Quote:
Originally Posted by Pride of Cucamonga
Can someone smarter than me (and that would likely be most of you, at least if we're with regards to stock trading) tell me if my assumptions are correct, that basically this article (if accurate) is proof that in many ways the market is rigged?
https://www.bloomberg.com/opinion/ar...lot-of-trouble
I would say this offers zero proof whatsoever that the market is rigged. That said, I'm unsure of what your unstated assumptions are.
This is certainly an interesting scenario and one I followed a bit as it played out, but this shed some extra light on it for sure. So this guy gets margin called on his giant short as nickel spikes following the invasion, causing a giant short squeeze to ensue. This is where things split from a giant short squeeze in the stock market, which would likely never be handled in this way.
In commodity markets, market participants are not just traders or investors, as they pretty much exclusively are in stocks, bonds, and other securities of that sort. So the nickel market includes, in addition to traders and investors, the companies that buy and sell physical nickel in the real world, not just contracts on the LME. These companies use the LME to hedge. Many of them would've been wiped out at $80-$100k nickel, decimating the nickel market, impacting the wider metals markets, and perhaps bleeding into the global economy as a whole. In an equity short squeeze, those wiped out are exclusively traders and investors who do not provide real world products that make the world "go."
Still, you may argue this is "rigged" because the LME cancelled trades from willing trade partners. I understand that view. But it isn't the same as a squeeze on a stock. The LME felt that "saving" the nickel market(and maybe more than that) was more important than ensuring Cliff Asness made bank trading a short squeeze when everyone involved knows it is financial glitching causing the price to soar, not fundamentals. They're probably right. Moreover, the guys on the wrong end of this aren't Redditors getting ****ed by some hedge fund voodoo or whatever people think goes on. Cliff Asness was on the wrong side. Both sides consist pretty much entirely of "pros."
Here is an analogy. Imagine if you would for a moment that there are only 1000 places in the USA to have a big box store. There is a market to trade month-to-month rent contracts for these spaces. Target, Walmart, Costco, and the rest all rent from landlords, but also hedge on this market where there is liquidity provided by traders like you and I. There's a giant short squeeze on this market and Target, Walmart, Costco, and everyone else are all getting margin called out of existence. Does the exchange let this happen? Or do they allow you and I to make a lot of money selling the squeeze? I know which one my neighbor would prefer. Now, obviously this is a contrived example that would never happen. But I hope it helps illustrate the point. I don't see this proving anything is "rigged."
