First off, let’s roughly dissect the group of participants involved in the markets. Those are Commercials, Large Speculators and Small speculators. Commercials use the markets to raise capital by selling shares in the Stock markets, ask for borrowed money in the Bond markets, or hedge themselves to minimize risk in the Futures markets. These activities performed by the Commercials are the real reason behind the existance of the Capital markets in the first place, they’re certainly not there for people to speculate and earn money out of air.

Commercials will open positions in the markets without caring too much about the short term variations of price. They might even not care at all. For example, a chocolate manufacturer company needs to buy sugar to produce their chocolates. If a natural disaster occurs and lots of sugar warehouses gets destroyed (this happened some years ago), sugar price will raise because supply decreases while demand remains the same. To avoid having to raise the price of their chocolates to the general public, the company would be hedged in the Futures markets before producing new chocolates and even before anticipating a natural disaster coming. The difference in money they’ll have to overpay to acquire their needed sugar will be earned through the markets, so their tasty chocolates can be sold at the same price with no employees getting fired because of a financial crisis and the industry continues to operate without wounds. So notice how these maneuvers by the Commercials help mitigate inflation and unemployment in the overall economy.

On the other hand, Large speculators (mostly banks and large fundings) will take the opposite side of Commercials, looking forward to earn money by making a difference in their buy and sell operations. Following the same reasoning, Small speculators and retail traders (probably you) will try to do the same while providing liquidity to the markets by offering their shares/contracts at almost any price. Keep in mind that because of Large speculator’s huge accounts, they trade the markets in a complete different way (we talk more about this in part two which covers Methodology).

So this scenario can be seen as a Poker table with three participants with more or less equally distributed capital. Those are many Commercials with big accounts, a few Large speculators with bigger accounts, and lots of Small speculators with small accounts (don’t be fooled by your 6 digits account, that’s small as well). Kindly note that this analogy applies to trading only because of its zero-sum game nature; investing is quite differently.