why is the futures market a thing

As with daylight savings time, many questions are answered by learning about farmers a long time ago but since you are a millenial faggot living in Idiocracy with no access to any historical information, make a thread about it then kys

>frog poster
>trip-fag
>asking a question that's answered in under a minute of google searching
kys

>>1956928
there are futures for things other than agricultural commodities you mongrel

>>1956917
OP, I don't think you're being serious, but here.

Essentially if I think the price of something will go up in the future more than someone else, I'll agree to a price slightly higher than today (by a continuous risk-free rate) but still lower than what I think the actual price will be at that time of the item.

Then, since I've agreed to pay for it in the future, I'll put my money into a bond now so it gets returns, then use those returns to pay for the item in the future and take my profits.

This way, by means of a future + a zero-coupon bond, I create a synthetic stock of sorts. But the real profit comes down to "I think this stock will be higher in the future than that guy thinks it will be, so I'll bet against him" so to speak.

Understand?
You're still basically just betting against people about what the price will be in the future.

>>1956944

So? You can hedge other assets with futures, or hedge against price fluctuation.

Even if the price of the underlying moves against your prediction, you still have a contract you can calculate with. It's a way to give companies safety in financial planning.

Most business is about minimising risk and relying on work and experience. The farmer doesn't want to risk a huge upswing/downswing in the price of the crop he specialized in. He fixes the price (his revenue) and can plan for future projects. Or think of a company that builds aeroplane parts. I'm just making numbers up now maybe they make a 100 million profit on a project. But they have to order aluminium for 900 million for this project. A 20% change in aluminium prices could make the whole project a huge loss for them.

Although futures and financial derivatives can be exploited they were created to avoid forecasting or gambling on prices.

>>1956995
This makes sense but why would somebody be willing to sell futures and another be willing to buy futures at the same time. In both scenarios more money would be made by one party if they waited for prices to rise/fall

Is it only about uncertainty, cause in the latter scenario if the aluminum manufacturer thought prices would rise why wouldn't they just not offer futures and have them pay the higher. Is it unironically just based upon uncertainty in a market? And if so why is this financial gambleing allowed?

>>1957048
>>1957048
>In both scenarios more money would be made by one party if they waited for prices to rise/fall

Most people and companies cannot predict prices successfully. The current price is already a result of demanders and suppliers. When everyone expected prices to rise, this price is moving or has already moved up towards market equilibrium.

>In both scenarios more money would be made by one party if they waited for prices to rise/fall
And that also means in both scenarios more money would be LOST by one party if they waited for prices to rise/fall.

>if the aluminum manufacturer thought prices would rise why wouldn't they just not offer futures and have them pay the higher
They don't have to enter the futures market. The companies that trade the aluminum among each other don't have to deal with each other in the futures market.

Again if everyone expected higher/lower prices you would see price movements quickly until demand and supply are at equilibirum. If you can predict prices successfully you don't need a company and can just speculate on the markets. A lot of people tried that.