Dalian iron ore contract and high frequency trading

On Oct. 8, I wrote about the Dalian iron ore contract and its impact on the market. To add a little color on the market, as a while the Dalian Commodity Exchange traded 879-million contracts in the first six months of 2016; the DCI trades a variety of commodities,i.e., steel rebar in addition to iron ore.

High frequency transactions dominate the exchange unlike the LME. The DCE is a hedge fund’s delight dominated by Chinese players. Many of the large traders had annual returns in excess of 30%.

“The supply/demand fundamentals don’t exist any longer,” one trader said. “It’s all in the volatility.” As long as the commodity prices go up, all the miners and metal producers are happy, but what happens with the shorts control the market?

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