Hopefully, one of you folks with a good sense of commodity trading can help with a question I’ve had for a long time. Setting aside the fact that they are trading ‘Frozen Orange Juice’ as a commodity, is the sequence of events at the end of the movie where Billy Ray Valentine (Eddie Murphy) and Louis Winthorpe III (Dan Akroyd) make themselves rich while bankrupting Mortimer and Randolph Duke (Don Ameche and Ralph Bellamy) ‘possible?’
–jim
With a reasonable allowance for artistic licence, the scene is indeed “possible”. Not to be rude but, why you think it might not be?
It IS rather over the top, though. It assumes that all traders will accept Murphys and Aycroyds view on the market at face value and run along with them. In the real world, price determination takes place by a pool of more, shall we say, diverse opinions.
And Frozen Orange Juice is a real, highly traded commodity. Check your financial paper or financial section for it. Same applies to Pork Bellies. 
Coldfire, I though that they weren’t believing the heroes so much as reacting to the news on the monitors. I think that it was the long range weather and how it would affect the orange crop.
Prior to that they had been taking the opposite positions that Murphy and Aycroyd had been taking.
But, overall I must agree with you. The effect was exagerated just a bit. 
Not to step on my fellow Streeter’s toes, but:
What’s wrong with that scene?
First of all, FCOJ is traded on the Coffee, Sugar and Cocoa exchange, a pretty sleepy place. The action doesn’t get nearly as frantic as it does on the New York Mercantile Exchange, where they filmed the trading scenes. Herd behavior can sometimes occur in any market, but Coldfire is spot-on that it isn’t likely to happen on the CSCE.
Second, you can’t just put on a polyester jacket and go down and trade; you have to lease or buy a seat (a membership) or get sponsored by a member firm. Dan Ackroyd’s character might have been able to lease a seat, but Eddie Murphy’s character would have lacked the requisite licenses (in fact, he would have lacked the licenses to make customer recommendations in the beginning of the movie, too, but what kind of movie would it have been if he spent the first half of it learning margin requirements?).
Third, you need money to trade. Lots of money. If you wanted to break a house like Duke and Duke, you’d need at least $30-40MM in capital pledged to the exchange, even if you had inside information and every trade made you money.
Fourth, prices don’t fluctuate violently enough for the scene to happen. There were no formal circuit breakers then but there were limits. That is, if a price moves so far in a day, that’s it. No trades further in that price direction. Either the price stabilizes at the down (or up) limit, or no more trades occur until the next day.
Fifth, we’re back to OJ. As you can imagine, it’s not a huge market, and most of the players are actual producers or users of the product. The speculative market is pretty small, and there’s no way to break a big firm on one day’s trading volume of the product, no matter how extreme the weather was.
Sixth, the information they had wasn’t that useful. I’m not saying that the market doesn’t move when the Ag. Sec’y estimate comes out, but most big trading firms have meteorologists and whatnot on staff (or outsourced) who produce estimates. A big surprise is pretty rare, and the surprise being that things are normal is even more rare.
Since we’re on this topic,
Can somebody explain exactly what happens in that scene? I know nothing about the stock market and never understood what happened. They waited until a certain time and yelled something thing making all the traders go nuts. Why?
thanks…
You’re correct. It’s been awhile since I saw the movie, I forgot about that. But still: after the news, they follow each and every move of Murphy and Acroyd. That’s the part that’s rather unlikely. There’s always someone who can gain by doing the opposite. Thank goodness there is.
A few months we had a short though detailed discussion of just this question here.
Murphy and Acroyd had stolen the long range weather forecasts so that they knew how the orange crop was going to turn out. I don’t remember if the truth was especially good or bad. For the purposes of illustration we will assume that it was bad. (If it was in fact good the following still applies, just in reverse.)
They replaced the real forecasts with false ones that implied a good orange harvest.
The bad guys looked at the false report and assumed that oranges would be in plentiful supply, making them cheaper, and consequently making FCOJ cheaper. Thus they sold FCOJ contracts short to make money form a falling market. (They sold at a high price (now) with the expectation of buying them back at a low price (later) and cancelling out their position.)
The heroes (knowing the truth) did the exact opposite. They bought FCOJ contracts now (at a low price) with the intention of selling them later (at a high price).
When the real weather report came out the truth was revealed. The harvest would be bad. Oranges and FCOJ would in fact rise in price. The bad guys now had to buy back the contracts they had sold short at higher prices, thus losing money. And the good guys were able to sell at higher prices the contracts they had bought at lower prices, thus making money.
I hope that makes sense. It was all rather rushed I’m afraid. If you want any clarification, just ask.
Damn, Billdo beat me.
And showed that I did all that typing for nothing. 
[major hijack]
“The real Kong is quicker.”
“But our Kong won’t tire.”
[/major hijack]
Testing if one of you knows what I am talking about.
Here is a thread from October that asks the same question. It is a short thread, but also does an excellent job of answering the question. Look for Bricker’s and Billdo’s replies in particular.
Kong?