1. Where can I find the agreed upon buy/sell price for a futures contract on completion?
For example, the farmer and buyer of Wheat agrees on a contract of $4 per bushel by June. The fluctuation of price is absorbed by speculators. Where can I find this "$4", in other words, the agreed upon price set by the original buyer and seller?
2. Why doesnt the price of the commodity STAY at $4? After all, the price was AGREED to be $4. What makes the price fluctuate?
Supply and Demand from innumerable sources causes the fluctuation, I suppose, but it's hard for me to wrap my head around. If the price for the contract was agreed to be $4 by June, that's the price it's going to be by June, right?
This brings up another question:
Say the price will be $4 when the contract expires. If the price is higher than $4 before the contract expires, wouldn't EVERYONE simply short, then make a profit on the KNOWN price of $4?
A transaction at 4$ is a contract between a seller and a buyer to deliver at this price based on what is expected right now to be the price in June. It's the case for every trade. It doesn't mean cash market price will be 4$ in June, just that this seller will sell to this buyer at this price in June...Nobody knows what the price will be in June.
1. Where can I find the agreed upon buy/sell price for a futures contract on completion?
For example, the farmer and buyer of Wheat agrees on a contract of $4 per bushel by June. The fluctuation of price is absorbed by speculators. Where can I find this "$4", in other words, the agreed upon price set by the original buyer and seller?
It's the same as a plain ticket for example. Just because you were anticipating your travel and got a good price 3 months before the flight doesn't mean people are not buying that plane ticket at a much higher price in the weeks before. Your deal doesn't mean price stop to fluctuate..LOL
1. Where can I find the agreed upon buy/sell price for a futures contract on completion?
For example, the farmer and buyer of Wheat agrees on a contract of $4 per bushel by June. The fluctuation of price is absorbed by speculators. Where can I find this "$4", in other words, the agreed upon price set by the original buyer and seller?
2. Why doesnt the price of the commodity STAY at $4? After all, the price was AGREED to be $4. What makes the price fluctuate?
Supply and Demand from innumerable sources causes the fluctuation, I suppose, but it's hard for me to wrap my head around. If the price for the contract was agreed to be $4 by June, that's the price it's going to be by June, right?
This brings up another question:
Say the price will be $4 when the contract expires. If the price is higher than $4 before the contract expires, wouldn't EVERYONE simply short, then make a profit on the KNOWN price of $4?
If the trade actually took place in the futures market, be it in the pit or electronically, the transaction will get printed. It should show in the T&S window.
Anyway, this sounds more like options than futures. Technically, I can give you a small premium (call it a goodwill gesture) in advance to pay $4 per bushel in June, even if wheat might trade above $4. You keep the premium no matter what and I have the right to either buy or simply walk away if I choose. This is options.
BTW how do you know $4 will be the settled price for June contract?
It's the same as a plain ticket for example. Just because you were anticipating your travel and got a good price 3 months before the flight doesn't mean people are not buying that plane ticket at a much higher price in the weeks before. Your deal doesn't mean price stop to fluctuate..LOL
The airlines don't set a contract price for ALL their tickets before the tickets are ever sold.
On the other hand, the grain producers DO set the price for ALL their wheat, so as to hedge against price fluctuations in the future. At least, this is how I understand it.
So, I can understand why airline tickets fluctuate - the price is not set, so the price is subject to supply and demand. However, the price of the wheat IS written in the contract the farmer makes. Isn't that the whole point of "forward delivery"?
So, either the analogy you provided doesn't appropriately describe things or I simply do not understand. What am I missing?
