What’s Harden?
A hardening market refers to rising securities prices and decreasing volatility in a particular financial market. Generally, the term “hardening market” refers to the commodities futures market. “Hardening” refers to stricter underwriting or lending rules in the insurance and banking sectors.
The Hardening Process
A market is “hardening” in commodities trading if prices grow gradually with minimal volatility. Many traders like trading in a hardening market because it appears quiet and predictable.
A hardening market may be a bad indicator for traders who want to bet on colossal commodity price fluctuations since it reduces volatility. Reduced volatility in underlying assets might harm owners of options contracts against such commodities, as their value often declines.
Hardening is typically associated with commodities futures markets but may also relate to severe insurance and banking underwriting or lending rules.
How Speculators Affect Volatility
Many believe that the influx of speculators into commodity futures markets has increased price volatility on futures contracts. Conversely, experts suggest that more futures traders and their liquidity stabilize or harden futures prices.
Researchers argue that futures markets are unpredictable due to traders’ access to significant leverage, not price movements. For instance, equity margins often range from 50% to 50%, whereas futures contracts sometimes have 5% to 10% margins. Even tiny price changes can significantly impact a heavily leveraged futures investment.
Hardening Special Considerations
Hardening means something different in insurance and banking. Hardening usually means stricter underwriting or lending rules in certain businesses. Financial shocks, like the 2007–2008 credit crunch, often lead to these times.
Financial institutions may adopt stricter underwriting or lending practices in response to risky decisions, such as the optimistic derivative contracts and subprime loan agreements made by American banks and insurance companies before the 2007-2008 financial crisis. After the financial crisis, financial institutions were eager to adopt more cautious lending and underwriting rules.
While the shift in financial institution mood from risky to conservative might minimize incorrect insurance policies and loans, it can also hinder credit and insurance access for creditworthy parties. Consumers and market players commonly argue that approval requirements have grown too strict during fiscal “harv” testing.”
Ke” Takeaways
- The phrase “har, “meaning” in “finance, refers to rising prices and decreasing volatility, especially in the commodities trade.
- Hardening in the insurance and lending sectors refers to times of stricter underwriting or lending.
- Financial crises frequently lead to hardening in the banking and insurance industries as organizations seek to limit risk.
