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Algorithmic trading

Another myth is that only financial participants employ automated trading strategies, otherwise known as algos. Not true. As markets have developed and matured, increasing numbers of commercial participants - including producers of commodities, utility firms and energy firms - employ automated trading strategies to assist with the execution of their hedging.

There is no conclusive evidence that algorithmic trading increases volatility.

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Why financial participants matter to the commodity markets

What speculation myths persist around commodity markets? In this paper, ICE’s Senior Vice President of Futures Exchanges Trabue Bland examines the critical role speculators play in the functioning of markets.

How derivatives work

Derivatives markets serve an essential function in the growth of economies and the efficient operation of industries and companies.

Participation in the derivatives markets

There are typically three broad categories of traders in derivatives markets - hedgers, speculators, and arbitrageurs.

Measures of market liquidity

Market liquidity can be a critical consideration for commercial participants so they can readily find willing buyers and sellers for their hedging while executing their trades with minimal cost.

Exposing speculation myths

One myth is that increases in commodity prices or large price movements in commodity markets are caused by speculators or algorithmic trading by financial participants in the futures markets.

Price caps prevent the market from finding a price by providing an artificial ceiling. As a result, there can be unpredictable and undesirable knock-on effects.

ICE’s supervision of markets and price controls

ICE has implemented dynamic and configurable price controls which change depending on prevailing market conditions.

Algorithmic trading

As markets have developed and matured, increasing numbers of commercial participants - including producers of commodities, utility firms and energy firms - employ automated trading strategies to assist with the execution of their hedging.

Position limits versus position management

Significant price moves increase the importance of effective position management. ICE monitors open interest developments in its markets on an ongoing basis and sets accountability levels.

Attacks on speculators during the financial crisis

Looking back to the financial crisis of 2008/ 2009 provides a helpful case study. During this time, speculators were blamed for price rises in oil, usually with no evidence to support the claims.