On Feb 16, 2011, at 5:13 PM, Jordan Hayes wrote:
> owever: on Tuesday, a wheat farmer shows up to the Thunderdome with actual wheat to sell. And so does a buyer from Nabisco, who is looking for wheat with which to make crackers in his factory. The price in the pit is presently $12. The farmer says: hmm, $12 is pretty good and sells a contract for $12. He puts his wheat with you for Friday clearing and goes home. The Nabisco fellow believes that the price will have to revert and so he waits a few days. On Thursday, he loses patience with the game, but the price is now $14. Unable to wait any longer, he buys a contract and arranges to EFP (exchange for physical) when the market closes on Friday.
And then another farmer gets a margin call.
Doug