Death comes to us all. Life's but a walking shadow | The long form introduces another whole level of complexity. First, I think you have to conclude that the Swap dealer's counterpartys are more likely endusers who don't want to be bothered with hedging. If you understand how swaps work it makes sense. The end user just wants to be able to buy grain at a n average set price and not worry about the details. So he goes to a swap dealer and says: "I want to pay $X for my grain. Here's a premuim $Y to guarentee that price. He then goes about buying grain. Meanwhile the Swap dealer hedges his side on the exchange with a long position. At the end of some period T they settle up. The end user sum up all his grain purchases to get a total. If his cost is more than the predetermined amount the swap dealer owes him the difference. If his cost is less than the predetermined amount the swap dealer pays the endusere the difference. If the price went up during the period the Swap dealer's long hedge covered his lost. If the price went down the swap dealer takes a loss on the position but recovers the loss from what the enduser pays him.
The swap dealer's premium covers his trading costs and provides his profit. Essentially the swap dealer eliminates the hassle of managing a grain account, making margin and all those details. A swap is effectively just a convienent way for a end user to go long without the bother. I think you can essentially just add the swap dealer's positions to the Commercial longs. This is why lumping swap dealers' positions with the non-commercials is so misleading. |
Committment of Traders Report
