Fact-checking Trading Places

With modest embellishments, the movie’s depiction of commodities trading is accurate and realistic, according to the latest Planet Money episode. I was surprised.

The end of the episode also has a neat little explanation of how Billy Ray and Winthorpe’s short-selling scheme works. Also described in this article. The key detail is that it is possible to sell a promise to sell FCOJ (or anything else being traded) at some future date and price. If the price is expected to go higher than the agreed-on price, people will jump at the opportunity – and if it falls, you can make a tidy profit. The protagonists, knowing that the rally in orange juice is based on faulty information, win big and simultaneously bankrupt Duke & Duke. Awesome.

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