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If a hedger buys a futures contract is he betting that prices will remain constant at the expiration of the contract?
Wiki User
∙ 11y ago
A hedger (an end user) who buys a futures contract is betting that prices are going to go up before settlement date. By purchasing a futures contract, he is shielding himself from upside risk.
Example: I am a hog finisher and I want to pay $7.65 per bushel for corn in March 2012. I therefore buy a futures contract at $7.65 per bushel. I know if I buy corn at that price I can make a profit by growing the pigs for 14 weeks and selling the carcasses for $98 per hundredweight, so I sell a forward contract (it's like a futures contract but it doesn't specify the weight I have to provide, which gives me security if Porky and Petunia die before they can be sent to market or they grow too slowly or too fast) at 98 cents per pound. Now there is no financial risk. (There is still risk from things like widespread hog deaths, lagoons breaking, bad weather, fires and all that other stuff that can befall a hog finisher, but at least the money is taken care of.) OTOH, if I tried doing my job without derivatives to shield me from market risk, corn getting expensive or pork getting cheap would put me in a world of hurt.
Wiki User
∙ 11y ago
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What is the ticker symbol for gold futures?
GCA is active 100oz COMEX contract. Use this to figure out specific expiration dates.
What is the definition of Futures betting?
Futures betting refers to placing wagers on events that are taking place several months in the future. There are a number of online sites on which one can place these bets.
How is Standard and Poors 500 Index's Fair Value calculated?
Since futures contracts on a market index expire only once a month, Fair Value is the Forward Value (at the time of a futures contract expiration) of an index spot price, where compounding takes into account time to expiration and dividends lost due to holding index futures rather than underlying stocks. If Fair Value before the open is lower than the futures contract price, you may expect that a market index will go higher after the opening bell.
What statement best explains what a futures contract is?
A futures contract is a contract setting the price and date for a commodity purchase.
How do you purchase a futures contract?
You purchase a futures contract by first opening a futures trading account, which is a margin account, with a futures broker. Once that is done, simply choose the specific futures contract you wish to buy and then pay its "Initial Margin", which is a deposit needed to start a futures trade.
What type of company is the Commodity Futures market?
there are two types that are part of the commodity futures market. A normal futures market is one where the price of the nearby contract is less than the price of the distant futures contract. The other is an inverted futures market, the price of the near contract is greater then the price of the distant contract.
How many bushels of wheat in a futures contract?
A wheat futures contract covers 5000 bushels of whatever wheat (there are different kinds) is specified in the contract.
What type of market is the commodity market?
there are two types that are part of the commodity futures market. A normal futures market is one where the price of the nearby contract is less than the price of the distant futures contract. The other is an inverted futures market, the price of the near contract is greater then the price of the distant contract.
When you choose future contract over forward contract?
When there isn't an active market for the forward contract. Generally, Futures contracts have a much more active open market than forward contracts and have alot more choice in terms of expiration months than forward contracts.
What is the ticker symbol for natural gas?
UNG is for the American spot market. NG is for the futures market on the NYMEX. NG is followed by the letter corresponding to the appropriate month you want to trade...ie NGH is a natural gas contract for March. After that comes the year, so for a natural gas futures contract with expiration in March 2011, it'd be NGH11.
When did trading begin in foreign currency futures?
In 1972 it launched a contract in foreign currency futures.
How does trading futures differ from stocks?
One can own a stock, but trading futures requires one to contract for the futures. Buying stocks gives you ownership (or your own share) in a part of the company that you're buying into. Trading futures, one enters into a contract for a particular commodity instead of actually buying into it. You can then contract to be a buyer or a seller of that commodity.
