Two beginner questions about futures:

Discussion in 'Ag Futures' started by TradeSparrow, Sep 8, 2011.

  1. 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 doesn’t 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?
  2. TraDaToR


    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.
  3. emg


    u can start by reading the cash markets:
  4. TraDaToR


    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
  5. schizo


    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?
  6. 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?
  7. Lornz


  8. I did a google search and looked at the first three links.
    This showed the prices that show up in the ThinkorSwim client, so that's not it.
    I could look at information on the wheat sold in several different locations, which is not what I'm looking for. Then again, I apparently don't understand how any of this works. I looked at some of the data on this site and am not sure what I'm looking at or if it is helpful at all.

    Would it not make sense to have an average sale price for all wheat per bushel? That would be the average price at which, say, a December contract is going to close at.
    It displays the wheat prices from various locations, but does not say which price corresponds to which contract. Again, I am not sure what to make of that data.

    If anyone knows anything about how this all works, I'm quite curious and very baffled. Not only do I not understand, but I'm not sure what questions to ask or where to look to find the explanations I need.

    Thanks everyone.
  9. TraDaToR


    First,there are multiple grain producers , selling their crops at different times in the futures market. Second, one producer doesn't necessarily sell all his wheat at one expiry and doesn't necessarily sell everything based on a forward contract( but on the cash market too ).It's a market ... Multiple parties trading at multiple times for multiple reasons...
  10. $4 is a purely hypothetical price. I'm just trying to understand how the market works.

    As for options, I haven't read anything about Options. All these questions are coming from reading about futures. The articles I read were from "Futures Fundamentals" article on Investopedia.
    #10     Sep 8, 2011