New Investors to Bring Increasing Volatility to Commodity Markets

Liquidity within commodity markets is expected to increase as a range of new entrants begins to move into the market, according to research by ABN AMRO. However, the trading patterns of some types of investor may also bring the greater price volatility more familiar to financial markets, according to the research. David Phipps, Head of Commodities at ABN AMRO, said that commodities have now become ‘fashionable’ as an investment vehicle and suggested that, following the entry of hedge funds, demand in the future could be fuelled by pension funds in basket-type trades. Another type of investor likely to move into commodities trading is the Professional Trader Group (PTG), said ABN AMRO. Often formed by day traders to take advantage of economies of scale, PTGs currently operate widely within the financial markets. These groups represent up to 50 per cent of daily trading volume in financials and could have a significant impact on liquidity, noted the research.

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