the point of futures?

Discussion in 'Trading' started by z32000, Aug 30, 2007.

  1. z32000


    just trying to figure what's the point of having futures if stocks already take into the consideration the future value of a company?
  2. Futures (and options) were created as a hedging vehicle. Speculation is just an ancillary use.
  3. Futures started centuries ago to assure farmers that they would be guaranteed a certain price for next season's crops and livestock. They would sell the future, plant the seed, provide the finished product at the "futures" price.

    And, yes, as a hedging vehicle. Check the historical charts on the Dow. From 1,000 to 1,000 over a decade before futures and options. From 1,000 to 14,000 in the 2 decades following futures.

  4. I think the OP is talking about single stock futures, not commodity or index futures.
  5. SSF's had more value before the elimination of the uptick requirement for short sales. Easier to get short when needed. Lower cost of carry I guess.

  6. gnome


    SSF = Just another derivative. And you know how crazy Wall St. is about anything you can call a derivative.
  7. Actually, to get technical, what you are referring to in the farmer case (which is hedging, by the way) is forwards, not futures. Futures are just standardized, exchange traded forwards. Forwards still get traded in the OTC market, especially fixed income instruments and currencies. Either way, they serve the same purpose.

    As for the differences between pre- and post- futures time periods let's keep in mind the differences in the economic situation. I'm not saying that futures trading hasn't contributed to the run-up, but things were pretty bad in the 70s.
  8. gnome


    Constant Fed money pump fixed all that. Well, except for the inflation and all...
  9. Futures help minimize volatility
  10. vectors101

    vectors101 Guest

    just another way for wall street market makers and brokers to make money selling bogus insurance with 1 month expiraday and collecting fees from speculators.(gamblers)
    #10     Aug 30, 2007