Quote:
Originally Posted by Duffman
There need not be speculation for this transaction to occur. Both parties can both be looking to protect their interests with long term contracts. An early payment for the seller can finance his operations, avoiding banks. The buyer is protected as his supply can not bought out from underneath him. Both parties can benefit from price stability as well.
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Possibly in principle, that is true. But such a market would be quite illiquid. There need to be plenty of ready buyers and sellers for all commodities and delivery dates for the pricing in the market to be efficient. Speculators provide that efficiency.
This is true in the stock market as well. The average person on the street when asked "what is the purpose of the stock market?" will say that it's to provide capital for corporations. While there is an element of that, if I go buy say, 10,000 shares of IBM, that provides no capital at all to IBM. I'm speculating that my return on the money I invest will exceed other places I might put it, or will balance my portfolio, or some other desired outcome. But I'm certainly not captializing IBM. Similarly, I can sell IBM short and speculate that the price will go down.
In a nutshell, a large group of buyers and sellers makes an efficient market, in the sense of reflecting available information and minimizing spreads.