China is discovering futures trading and it's an ugly mess

Author: Adam Button | Category: News

Massive futures trading volumes continue to roil markets

One of the theories out there regarding the huge commodity price bounce since mid-February is that Chinese investors are skewing the picture.

Suddenly, the country has discovered futures trading. I wrote about the phenomenon in April as volumes go parabolic in things like rebar. The value of futures traded on one day was worth more than the entire stock market.

Eamonn wrote more about it last week:

Rarely has a mania escalated so rapidly, and spurred such fevered trading, as the great China commodities boom of 2016. Over the span of just two wild months, daily turnover on the nation's futures markets has jumped by the equivalent of $183 billion, outpacing the headiest days of last year's Chinese stock bubble and making volumes on the Nasdaq exchange in 2000 look tame.

The latest victim may have been the Hong Kong Hang Seng China Enterprises Index. In today's trading, it dropped 2.5% in about 2 minutes at 6:14 GMT. At that moment, 5000 May futures were dumped. Compare that with an average volume of trading of 200 futures contracts per minute.

There's talk about a fat finger and prices mostly recovered but it seems like only a matter of time until the Chinese futures casino sparks some kind of meltdown.


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