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Re:Ask HN: What's the biggest red flag you've encountered du... by wdg3 on Monday August 21, 2023 @09:03PM (#37217306)
The relationship between futures traders and farmers is pretty much identical to that between any kind of insurance company and its customers - it's a risk arbitrage transaction where the client (farmers in this case) are sacrificing profit in expectation for a flatter outcome curve which in a properly priced market yields higher utility in expectation, since utility as a function of profit is concave for an individual farmer and much closer to linear for a well-capitalized market maker.
Re:Ask HN: What's the biggest red flag you've encountered du... by abdullahkhalids on Monday August 21, 2023 @11:04PM (#37218152)
I understand the mathematics. The problem is that there is a practical asymmetry of information. Large future traders can invest a lot of resources into getting a much better prediction of future prices, while individual farmers cannot. In such scenarios, it is inevitable that farmers will be exploited by future traders into making bad deals.
Re:Ask HN: What's the biggest red flag you've encountered du... by malloryerik on Tuesday August 22, 2023 @02:04AM (#37219195)
You might try examining -- with an open mindset -- a few CFTC Commitments of Traders reports and then see if you feel the same way.