LOL! But, you gotta hand it to the traders helping him out. Just like you keep helping guys out with the same type of hardware questions. It's all appreciated. Part of EliteTrader's reason for existence, right?
Really? I never knew that. If they don't have any special powers or knowledge then what's in it for them to always quote a bid/ask? Seems like extra risk without any extra reward.
Wrong. Part of a futures contract is "cost of carry". With commodities which can settle "in kind", it's likely storage expense. For financial futures it's interest rates and dividends, where applicable. On expiration day all of the costs of carry have expired... that is, there is no longer a "time premium"... so that at settlement "futures price = spot price". Example of "time premium"... Let's say you are a grain miller. The majority of grains are harvested in September(?). As a miller, you don't want a deluge of grain to hit your mill just after harvest time, so you agree to pay the farmer more money to hold his grain off the market and deliver it to you in December... that's "storage cost" and part of the futures contract price. As the December delivery date approaches, the "time premium" has been worked off and is no longer part of the futures price. A similar time premium is included in financial futures to account for the "time value of money".. ie interest rate opportunity lost + any dividends payable, if applicable. By settlement date, time premium factors have been worked to zero. Arbitrage has nothing to do with this process other than to scalp a few tics here and there.
Huh? Read again. There is nothing "in the system" (meaning Globex, CBOT, CME, or anything else) requiring the cost of carry to be accounted for. Only arbitrageurs do that. You're just full of misinformation today. Of course futures markets have Market Makers. CBOT designated FCStone for Ethanol futures: http://www.ethanolmarket.com/PressReleaseFCStone040107 Susquehanna is the market maker for AIG ER futures: http://www.cbot.com/cbot/pub/cont_detail/0,3206,1562+12883,00.html There are Primary Market Makers in many futures options as well. http://investor.cme.com/ReleaseDetail.cfm?ReleaseID=159407 http://goliath.ecnext.com/coms2/summary_0199-803711_ITM Market Makers are invaluable for new products. You don't think there were MM's on all of NYMEX's electronic softs from day one? I wouldn't be surprised if there were Primary MMs for ES, although I can't imagine that's terribly profitable at this point. There are no specialists, but there are certainly market makers. In fact, most locals act as market makers.
Actually, that's not true either. Arbitrage is different from a scalper. This is particularly true in physically settled commodities. If you can sell a July contract for above the cost of carry, you can head to a grain elevator and buy 5000 bushels of corn to be delivered against it. The opposite is true as well. If you can negotiate a foward agreement with a grain elevator, you can buy a futures contract and deliver against it. This is (one way) arbitrage works in grain markets. It's also one reason why physically settled contracts are generally preferred to cash settled when both are available.
In fact, there's an article in this month's Futures magazine that discussses market making in futures -- Automated trading: An exchange's best friend.
Exchanges occassionally designate market makers in new or thinly traded markets. All they get is reduced or no fees to show up. Typically are expected, but not required to provide liquidity.