“It has been estimated that the six largest “too big to fail” banks control $3.9 trillion in commodity derivatives contracts.”
You have to look at what is actually meant by ‘control’. Many of these banks are prime clearing brokers, which means they hold contracts for others.
So if you open an account at Friendly Option Brokers, who clears through JP Morgan Chase, and buy 50 oil contracts, then your contracts show up as being held by JP Morgan Chase. However, if prices fall, it is you, and not JP Morgan Chase, who will be asked to put up more collateral. If you don’t do this, then your account will be sold out.
The primary broker/dealers make their money by facilitating transactions, not by taking actual risks.
RE: However, if prices fall, it is you, and not JP Morgan Chase, who will be asked to put up more collateral. If you don’t do this, then your account will be sold out.
Who’s gonna buy?