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From: tombl@metheus.UUCP
Newsgroups: net.movies
Subject: Re: Trading Places
Message-ID: <133@metheus.UUCP>
Date: Sun, 3-Jul-83 20:20:48 EDT
Article-I.D.: metheus.133
Posted: Sun Jul  3 20:20:48 1983
Date-Received: Thu, 7-Jul-83 02:09:15 EDT
References: cbscc.114
Lines: 21

Regarding commodities trading: commodities brokers cover only a fraction of the
cost of a commodity they buy or sell. They can, and frequently do, undertake
transactions which exceed the total capitilization of their company.

What happened in the movie was that the "buy" went out in anticipation of
a rise in the price of orange juice concentrate futures. What the broker will
be expecting to do is hold the commodity, perhaps for only for a matter of
minutes, and then sell at the new (higher) price. In the movie, everyone
got a "sell" at the same time (Dept. of Ag.) announcement. Clearly, the
broker will want to unload the commodity as soon as possible -- but at that
point no one was buying. Hence the drop in price as brokers become increasingly
desperate.

The buy at 30, or whatever it was, was a buy by our heroes, who at that point
were holding nothing. They could reasonably expect the price to rise (so also
could anyone else who happened to be following the action), probably to a level
not too different than 100 where it started. Presumably they had the cash to
cover themselves in the meantime, or could raise it either from other sources
or by selling out part of their holdings at a lower price. The other brokers
may not had the cash, or the confidence, to wait for the price to rise. Also,
they had an opportunity cost to factor in.