Insider trading is legal in commodities markets. If I am engaged in a hedging transaction I am doing so because I know about risks that I want to offload, and the buyer does also. You don't come to commodities markets without information.

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gavinsyancey 3 hours ago | parent | next [-]

Hedging is not insider trading. Insider trading is trading based on material non-public information in breach of a duty or obtained through fraud. In that sense, it's more of a principal-agent problem.

Also -- hedging is generally not done based on material non-public information, but rather to guard against known risks. Joe the farmer sells a bunch of wheat futures when he plants his wheat, not because he thinks the price will go down, but rather because if it does he goes bankrupt and he'd prefer to accept a known rate-of-return now.

	▲	jcalx 2 hours ago \| parent [-]
		Note that's a US definition — Europe is stricter and draws the line at non-public information [0], aside from certain carveouts and safe harbors. Matt Levine describes this as "theft" (misappropriating nonpublic information) vs. "fairness" (using nonpublic information at all) — iirc if you're on a flight and overhear a passenger in business class talking about an upcoming merger they're working on, that's legal to trade on in the US but illegal in Europe. At least that's what I generally remember about "parity-of-information" theory. [0] https://blogs.law.ox.ac.uk/oblb/blog-post/2024/01/insider-de...

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jameshart 2 hours ago | parent | prev | next [-]

If you and the buyer know about the risks then you’re not making a trade based on material non public information, are you?

If you make a hedging trade while having material knowledge that you withhold from the counterparty… well, that sounds like it could be edging towards fraud. Like taking out life insurance while hiding a medical condition.

But sure, it’s not against the law to do business with a sucker, so there’s degrees here.

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CPLX 3 hours ago | parent | prev | next [-]

Just for context that’s not quite accurate. There certainly is a distinction in the rule versus securities markets, which I know is what you mean.

But it’s more accurate to say participants can trade on lawfully obtained material nonpublic information absent some independent duty not to use it, which is much narrower than saying insider trading is generally legal.

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cucumber3732842 3 hours ago | parent | prev [-]

Exactly. Pit mine sees who's buying what and is worried copper will go down. Datacenter people see who's inking deals and are worried it's gonna go up. They both need to get big fancy loans from their bankers to execute their upcoming projects. The bankers won't like to see unbounded risk on their balance sheets. A futures contract exists to solve this problem.

Not that this excuses some of the absurd stuff that goes on on the online betting platforms...