The prices of commodity futures contracts are established by the buying and selling of market participants. Some are commercials or bona fide hedgers, who are either long hedging (such as refiners) or short hedging (such as producers). Others are speculators, such as small traders to hedge funds (CTAs) to the passive, long-only commodity index funds (USO, etc).
@@PolntBlank Investor types would say the downside is cost, which detracts from returns. In the years after the Global Financial Crisis in 2008, for example, many underestimated the magnitude (distance, duration) of the central banks' (esp the US Fed) resolve to continue crisis-era expansive and ultra-accommodative monetary policy. That activity distorted markets higher by suppressing volatility and natural market forces and even the normal business cycle. Much was spent on hedging the stock market which was never required. The option writers collected vast sums. Many but not all commercial market participants would say hedging is simply a necessity of doing business, and factor the cost into their expected returns. Commodity merchant traders would almost certainly always hedge. Whereas producers, whether it be gold miners or wheat farmers, sometimes choose to not hedge depending on their outlooks for the markets they're supplying. The term structure of their market is often key and within that realm, gauging to what degree the spreads between delivery contracts (i.e. futures) reflect full commercial carry. Carry is simply the difference between the benefit associated with doing something and the cost of doing it. We all want positive carry (think: having a child). But for commercial commodity hedgers, carry is always negative, comprised of the costs of storage, insurance and financing. Sometimes, the term structure pays producers to store and sell deferred; at other times to not store and instead sell up front. Hedge margin financing is another consideration. While futures hedge margins are less than speculative margins, commercial hedgers will still get margin calls they will have to satisfy if the market price moves against them in between the time the hedge is established and when they deliver their actual commodity against the contract or otherwise offset it upon selling/buying their actual commodity. An old adage is 'Hedge when you can, not when you must'.
Anyone interested in electronic oil trading, who has technical experience and wants to share his experience, joins. I would like to establish a global electronic platform for trading oil futures contracts. Instead of succumbing to big scam platforms.
That best explanation I've ever seen in the internet on Futures.
Glad you enjoyed it!
THANK YOU!! Very simple and clear explanation
Wow...explained it in a very easy and understandable manner! Thank you very much for this short video clip 🙏
I’d like a link to the study referenced about futures price being today vs expected price at x time
Im going crazy over this... but simple question, who or how the price of the future is established?
They use models to predict price and try to fool us to hedge
What’s the downside to hedging ? Curious
The prices of commodity futures contracts are established by the buying and selling of market participants. Some are commercials or bona fide hedgers, who are either long hedging (such as refiners) or short hedging (such as producers). Others are speculators, such as small traders to hedge funds (CTAs) to the passive, long-only commodity index funds (USO, etc).
@@PolntBlank Investor types would say the downside is cost, which detracts from returns. In the years after the Global Financial Crisis in 2008, for example, many underestimated the magnitude (distance, duration) of the central banks' (esp the US Fed) resolve to continue crisis-era expansive and ultra-accommodative monetary policy. That activity distorted markets higher by suppressing volatility and natural market forces and even the normal business cycle. Much was spent on hedging the stock market which was never required. The option writers collected vast sums. Many but not all commercial market participants would say hedging is simply a necessity of doing business, and factor the cost into their expected returns. Commodity merchant traders would almost certainly always hedge. Whereas producers, whether it be gold miners or wheat farmers, sometimes choose to not hedge depending on their outlooks for the markets they're supplying. The term structure of their market is often key and within that realm, gauging to what degree the spreads between delivery contracts (i.e. futures) reflect full commercial carry. Carry is simply the difference between the benefit associated with doing something and the cost of doing it. We all want positive carry (think: having a child). But for commercial commodity hedgers, carry is always negative, comprised of the costs of storage, insurance and financing. Sometimes, the term structure pays producers to store and sell deferred; at other times to not store and instead sell up front. Hedge margin financing is another consideration. While futures hedge margins are less than speculative margins, commercial hedgers will still get margin calls they will have to satisfy if the market price moves against them in between the time the hedge is established and when they deliver their actual commodity against the contract or otherwise offset it upon selling/buying their actual commodity. An old adage is 'Hedge when you can, not when you must'.
@@kevinlaffey9310 beautiful explanation, please suggest a book or something to enhance my knowledge in the commodities trading world.
Where can I go to learn everything about this, and not have to pay for college all over again?
Anyone interested in electronic oil trading, who has technical experience and wants to share his experience, joins. I would like to establish a global electronic platform for trading oil futures contracts. Instead of succumbing to big scam platforms.
Not too bad, but just use some real examples, man.